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TANZANIA DTIS 2017 | iv Contents x ACKNOWLEDGMENTS xii EXECUTIVE SUMMARY xxvi ABBREVIATIONS 2 CHAPTER 1: INTRODUCTION 4 Notes 6 CHAPTER 2: MACROECONOMIC OVERVIEW, BUSINESS- ENABLING ENVIRONMENT, AND THE 2005 DTIS LESSONS LEARNED 6 Macroeconomic Overview 10 Business-Enabling Environment 11 Trading Across Borders 13 Trade and Poverty 13 Implementation of the 2005 DTIS Action Matrix 14 Poor Follow-Up on the 2005 DTIS 15 Lessons from the 2005 DTIS 16 Policy Vision of the Administration and the DTIS Update 16 DTIS Update Focus Areas 17 Notes 17 References 18 CHAPTER 3: TRADE POLICY AND TRADE PERFORMANCE 19 General Duty Schedules and Tariffs 20 Tariff Policy and the Use of Rebates 20 Incentive Regime 21 Export Duties 21 Regional Integration 23 Trade Performance 21 Trade in Services 22 Characteristics of Exporters in Tanzania 23 Trade Costs 25 Recommendations 26 Notes 26 References Contents | v 28 CHAPTER 4: BORDER MANAGEMENT, TRADE LOGISTICS, AND TRANSPORT 29 Tanzania’s Trade Logistics and Trading Across Borders Performance 33 Trade Facilitation Agreements 35 Border Management Agencies 36 Tanzanian Customs Integrated System 37 National Single Window and TANCIS 37 Single Window: Coordination, Transparency, Security, and Information Technology 37 Port Community System 38 Other Border Management Agencies 38 Transparency, Information, and Communication Mechanisms 39 Port Efficiency and Border Clearances 40 Release Time at the Tanzania Borders 41 Dar es Salaam and Kilimanjaro Airports 42 Namanga Land Border with Kenya 42 One-Stop Border Post Framework for the EAC 43 Small-Scale Trade 43 Dar es Salaam Maritime Gateway Project 44 The Great Lakes Trade Facilitation Program 44 EAC Operation to Accelerate Regional Integration in the East Africa 44 Role of the Private Sector in Trade Facilitation and Logistics 45 Availability, Quality, and Performance of Logistics Services 45 Recommendations 46 Notes 47 References 48 CHAPTER 5: AGRICULTURE: TRADE AND REGULATORY POLICIES 53 Recent Sector Performance 58 Agricultural Policy and Institutional Framework 58 Export Licenses 59 Agricultural Tariffs and Taxes 62 Agricultural Inputs—Regulatory Environment 69 Standards and Technical Regulations 70 Sanitary and Phytosanitary Measures 71 Radiation Testing for Agriculture and Foodstuff Imports and Exports 72 Selected Agricultural Sectors: Growth and Structural Change 72 Maize 74 Rice 75 Sugar 76 Cashew 78 Fisheries 78 Addressing Constraints to Growth 79 Notes 80 References 84 CHAPTER 6: EXTRACTIVE INDUSTRIES 86 Institutional Framework TANZANIA DTIS 2017 | vi 87 Market Structure and Trends 87 Large-Scale Mining 92 Artisanal and Small-Scale Mining 96 Gas Sector 98 Development Challenges 98 Weak Business-Enabling Environment Constraints in the EI sector and its Links 99 Unclear Regulatory Framework to Create Upstream Links 101 Downstream Beneficiating Policies May Have Unintended Consequences 105 The State-Owned Companies’ Conflicting Roles and The Financial Self- Sustainability is Not Guaranteed 106 Formalization of the ASM Sector is Proving Difficult 109 Lack of Regional Coordination Limits the Opportunities to Create Links from the EI Sector 111 Addressing the Constraints 111 Recommendations 114 Notes 116 References 119 Annex 6A 120 CHAPTER 7: TOURISM 121 Tourism Growth Trends, Market Segments, and Sector Assets 121 Growth Trends 121 Market Segments and Sector Assets 123 Tourism Policy and Institutional Framework 124 Development Challenges 124 Policies and Governance 128 Increasing Economic Links 136 Human Resource Development 137 Finance and Land 138 Business-Enabling Environment 140 Air and Land Access 140 Addressing Constraints to Growth 140 Existing World Bank Projects and Programs 140 Priority DTIS 2017 142 Notes 142 References 144 CHAPTER 8: ZANZIBAR 146 Business-Enabling Environment 148 Zanzibar Trade 149 Agriculture 150 Cloves and Spices 151 Essential Oil Distillery in Pemba 152 Performance of Livestock Subsector 153 Fisheries Subsector 153 Seaweed Subsector 155 Tourism Sector 156 Regional Integration Contents | vii 156 Regional Labor Mobility 157 Access 157 Enhanced Links 157 Development Constraints 157 Supply Side Constraints 158 Demand Constraints 159 Small-Scale Tourism 160 Notes 160 References BOXES 15 2.1: Implementation Challenges Identified in the FYDP II: Lessons Learned 21 3.1: Example of Effective Rate of Protection 20 3.2: Intra-Regional EAC Trade Mirror Trade Data 34 4.1: WTO Trade Facilitation 53 5.1: Applying Risk Assessment, Risk Management, and Risk Communication 54 5.2: The Tanzania Agriculture and Food Security Investment Plan 58 5.3: Procedures for Obtaining an Export Permit for Staple Foods 60 5.4: Limitations on Export Marketing: The Example of Coffee 61 5.5: The EAC Simplified Trade Regime 61 5.6: Local Taxes and Levies: The Case of Maize in Southern Tanzania 71 5.7: Obtaining a Radioactivity Analysis Certificate 75 5.8: Tanzania Rice Tariffs Fluctuating from 2005 to 2015 99 6.1: Coal Mining License Reallocation 100 6.2: Joint Ventures: A Policy Tool to Create Upstream Links 102 6.3: Policy Options to Move Downstream in the EI Value Chain 103 6.4: Copper and Gold concentrate export ban 104 6.5: Why Domestic Gas Allocation Should Not Be Changed after an Agreement: The Case of Egypt 110 6.6: The Zambia-Tanzania-Kenya Interconnector: To Facilitate Power Trade Between the SAPP and the EAPP 112 6.7: The Mtwara Development Corridor: A Potential Driver for Regional Integration 126 7.1: Understanding GATS Terminology 132 7.2: Nomad Tanzania 139 7.3: Tanzania Major Taxes and Fees 147 8.1: Zanzibar Business Licensing System 148 8.2: Zanzibar Fiscal and Other Incentives FIGURES 7 2.1: Growth continues to outpace East African Community comparators, 2011–16 7 2.2: Growth contribution by major sectors, 2004–14 8 2.3: Inflation remained low, Feb 2012–Feb 2017 8 2.4: Narrowing current account deficit, Jun 2013–Jan 2017 10 2.5: Real GDP and inflation, 1980–2015 11 2.6: Doing Business Indicators, 2010–16 11 2.7: Doing business indicators: Overall, Tanzania and selected countries, 2016 TANZANIA DTIS 2017 | viii 12 2.9: Documentary Compliance Costs for Imports and Exports, Tanzania and Selected Countries, 2016 12 2.8: Doing business indicators: Trading across border, Tanzania and selected countries, 2016 12 2.10: Border Compliance Costs for Imports and Exports, Tanzania and Selected Countries, 2016 23 3.1: Openness to Trade, 2014–15 23 3.2: Share in World Exports of Goods and Services, 2004–14 18 3.3: Exports by Sector, US$ million, 2005–15 18 3.4: Share of Total Exports by Sector, 2005–15 18 3.5: Gold exports and price, 2005–15 19 3.6: Growth Decomposition in Agricultural Exports, 2005–15 22 3.7: Compound Annual Growth Rate in Services Exports, 2005–13 24 3.9: Bilateral Trade Costs with Major Trading Partners, 2005–13 24 3.8: Progress on Reducing Trade Costs, 2005–13 25 3.10: Change in Bilateral Trade Costs, 2005–13 25 3.11: Bilateral Trade Costs, Agriculture, 2005–13 25 3.12: Bilateral Trade Costs, Manufacturing, 2005–13 30 4.1: Logistics Performance Index, Tanzania and Selected countries 2007–16 31 4.2: Doing Business Trading Across Borders Indicator, Tanzania and Selected Countries 32 4.3: Doing Business Overall Indicator, Tanzania and Selected Countries 33 4.4: Trading Across Borders, Time to Trade Subindicators, 2016 41 4.5: Dar es Salaam Port: Share of Containers by “Risk” Channel, Apr 2014–Dec 2015 41 4.7: Dar es Salaam and Kilimanjaro Airports: Imports by “Risk” Channel, May 2014–Dec 2015 41 4.6: Dar es Salaam Port: Release Time by “Risk” Channel, Apr 2014–Dec 2015 41 4.8: Dar es Salaam and Kilimanjaro Airports: Release Time by Risk Channel, days, May 2014–Dec 2015 42 4.9: Namanga Land Border with Kenya: Imports by Risk Channel, days, Nov 2014–Dec 2015 42 4.10: Namanga Land Border with Kenya: Release Time by Risk Channel, days, Nov 2014–Dec 2015 55 5.1: Tanzania’s Agriculture Trade Balance, 2006–15 55 5.2: Agriculture, Share of Merchandise Exports, 2006–15 65 5.3: Fertilizer Use in Tanzania, 2005–14 74 5.4: Rice Production, Area, and Yields, FY2005–13 78 5.5: Tanzania Fisheries Exports, 2005–14 85 6.1: Extractive Industries in Tanzania 88 6.2: Gold Production and Tax Payments, 2000–15 89 6.3: Awarded Prospecting Licenses, 1990–2014 89 6.4: Gold Value Chain in Tanzania 90 6.5: LSM Foreign and Local Procurement, 2006–15 91 6.6: TanzaniteOne Production, 2004–15 91 6.7: Tanzanite Value Chain in Tanzania 93 6.8: Declared ASM Gold Production, 2004–15 94 6.9: Typical Value Chain of ASM Gold Sector 95 6.10: Declared ASM-Tanzanite Production, 2004–15* Contents | ix 97 6.11: Gas Value Chain in Tanzania 107 6.12: Primary Mining Licenses Issued, 1999–2013 121 7.1: International Arrivals to Tanzania, Kenya, Uganda, and Botswana, 2005–15 122 7.2: Total Visitors to Protected Areas, 2014 123 7.3: Origin of International Visitors, 2015 129 7.4: Typical Tourism Value Chain 129 7.5: Illustrative Operator Value Chain for Tanzania 145 8.1: Zanzibar’s Economy Factsheet 154 8.2: Trends in Seaweed Production and Value, 1990–2008 154 8.3: Trends in Seaweed Exports from Zanzibar, 1990–2008 156 8.4: International Arrivals to Zanzibar, 1985–2015 156 8.5: Zanzibar Tourism-Related Services, 2007–14 TABLES E.1: DTIS Priority Action Matrix 19 3.1: Tanzania’s Tariff Structure 20 3.2: Sector Groups Ex Ante Most-Favored-Nations Tariffs 19 3.3: Tanzanian Exports, by Main Destination, US$ million, 2005–15 20 3.4: Tanzania’s Top 20 Exported Products, 2015 21 3.5: Tanzania’s Goods and Services Exports to the EAC and SADC, US$ mil- lions/thousands per capita 23 3.6: Leading Products: Destination, by Growth Margin 40 4.1: Dar es Salaam Customs Clearance Time by Channel 56 5.1: Tanzania’s Top 20 Agriculture Exports, 2006–15 57 5.2: Tanzania’s Top 10 Agriculture Imports, 2006–15 60 5.3: Tanzania’s Agriculture Common External Tariff 75 5.4: Tanzania Sugar Imports and Exports, US$ million, 2013–14 98 6.1: Gas Demand Projections in the Gas Master Plan, 2015–45 104 6.2: Gas Demand Scenarios versus Discovered Reserves 112 B6.5.1: Cargo Assessment for Mtwara Port 119 6A.1: List of Companies Connected to Natural Gas and Consumption 123 7.1: Number of Tourist Standard Accommodation Establishments around Tanzania, 2013 126 7.2: EAC and SADC: GATS Tourism Commitments 127 7.3: International Arrivals to Tanzania from Eastern and Southern Africa, 2009–14 127 7.4: Total Tourist Arrivals and Receipts in EAC Countries, 2014 133 7.5: Number of Registered Tourism Businesses 134 7.6: Classification of Tourism Businesses 141 7.7: World Bank Tourism Initiatives for Tanzania 150 8.1: Food Crops Value Produced in Zanzibar, 2014 and 2015 151 8.2: Quantity and Price of Cloves, 2011–15 152 8.3: Production of Essential Oils in Pemba, Kilograms, 2016 154 8.4: Production of Seaweed in Zanzibar, 2010–15 156 8.5: Average Length of Stay for International Tourists, 2010–14 156 8.6: Contribution of Tourism to Zanzibar GDP, 2007–14 159 8.7: Ranking for Ease of Paying Taxes for Selected Small Island Economies, 2015 TANZANIA DTIS 2017 | x Acknowledgments At the request of the Government of Tanzania, the World Bank Group took the lead role in preparing this Diagnostic Trade Integration Study (DTIS) Update under the umbrella of and financing through the Enhanced Integrated Framework (EIF) with additional financing from the World Bank. The EIF brings together partners and resources to support least-developed countries in using trade for poverty reduction, inclusive growth, and sustainable development, and is supported by the EIF Trust Fund donors. The core members of the team were Robert Kirk (lead technical consultant); Barak Hoffman and Bede Lyimo (implementation of the 2005 DTIS action matrix); Carmine Soprano (small-scale trade and gender); Guillermo Arenas (trade performance); Alina Antoci and Olivier Hartmann (transport and trade facilitation); John Keyser (trade in agriculture); Nicolas Maennling and Willison Mutagwaba (mining and extractives); Scott Wayne and Shaun Mann (tourism); Josaphat Kweka (Zanzibar). The task team leader of the report is Maryla Maliszewska. The comments and guidance from Simon Hess and the EIF Board are gratefully acknowledged. The analysis in the report benefited greatly from very helpful comments and feed- back provided by Paul Brenton, Loraine Ronchi, Gozde Isik, Paolo Zacchia, Nora Dihel, Catherine Masinde, Jose Guilherme Reis, and Martin Humphreys. Guidance provided by the Country Director Bella Bird, Yutaka Yoshino, Steven Dimitriyev, Preeti Aurora, and Neema Mwingu is gratefully appreciated. The report also benefited from Acknowledgments | xi inputs from several local consultants: Herman Hishamu, Tahir M. Ahmed, Lutengano Mwinuka, Festo Maro, Moses Njole, and Samwel Maregeri. The DTIS update was elaborated in close cooperation with counterparts in the Government of Tanzania. The team acknowledges the leadership and support of Professor Adolph Mkenda, Permanent Secretary in the Ministry of Industry, Trade and Investment (MITI) and his successor Professor Elisante Ole Gabriel, as well as the Deputy Permanent Secretary in the MITI Professor Joseph Buchweishaija. We are also grateful to Ali Khamis Juma, Permanent Secretary and Nana Mwanjisi, Director of Policy and Planning at the Zanzibar Ministry of Industry, Trade and Marketing. The National Implementation Unit of the EIF team consisting of Bede Lyimo, Augustino K. Likwelile, Natasha Ngowi, and Rita Magere provided useful comments on the concept note and the report, assisted the team in the selection of local consultants, led national consultations and co-organized the kickoff, prevalidation, and validation workshops. The DTIS update team would also like to thank the numerous stakeholders from the public and private sectors and donors who provided helpful insights during the team missions undertaken in 2015 and 2016, at the kickoff workshop in Dar es Salaam in November 2015, at the workshops on preliminary results organized in November 2016 in Dar es Salaam, Stone Town, and Arusha, consultations with the donors in January and August 2017, private and public sector consultations in September and October 2017, and the validation workshops in November 2017 in Dar es Salaam and Stone Town. The team gratefully acknowledges the logistical support provided by Deliwe Ziyendammanja, Gloria Sindano, and Grace Mayala. Patrick Ibay has skillfully edited the report and generated the data visualizations. TANZANIA DTIS 2017 | xii Executive Summary The Tanzania Diagnostic Trade Integration Study (DTIS) 20171 identifies priority actions in support of the coun- try’s strategy to deliver broad-based growth through trade integration. The study seeks to (a) take stock of the progress in implementing the action matrix adopted in the DTIS 2005; (b) provide an in-depth focus on agri- business, mining, and tourism; (c) identify obstacles to the realization of the full development potential of agriculture and tourism in Zanzibar; and (d) prepare an updated action matrix. While the report focuses on agribusiness, mining, and tourism, it more broadly addresses the issues of regional integration, trade facilitation, small-scale trade, and gender. The report identifies a package of measures that will support Tanzania’s effective delivery of its Integrated Industrial Development Strategy 2025. I. Further trade reforms are needed for diversification, job creation, and poverty reduction a. Growth has been strong, but it needs to be higher and more broad-based to eradicate poverty Growth has not been high enough to absorb the fast- growing labor force. Tanzania has achieved an annual real rate of growth of 6.4 percent over the past 15 years, This Diagnostic Trade Integration which is forecast to continue through 2018. Tanzania’s Study update focuses on the high rate of growth—driven largely by the construction, transport, communications, and financial services—has trade-related constraints outperformed growth in its East African Community holding back Tanzania from (EAC) partners. And yet it has not been sufficient to absorb the 700,000 annual new entrants to the labor diversifying and increasing its market, resulting in underemployment or employment in regional and global trade. low-productivity jobs. Executive Summary | xiii Poverty remains widespread. The poverty rate fell from • The regional trade potential has not been 34 percent in early 2000s, but, at 28.2 percent in 2015 fully exploited. (or 12 million Tanzanians still living below the national poverty line), it remains high. Moreover, while the pace Trade with the EAC has remained relatively low for an of reduction has been rapid in Dar es Salaam, driven economic union. In 2015, Tanzania sourced only 4 per- by employment in nonfarm activities and by increased cent of its imports from within the EAC and exports ac- asset ownership, it has been much slower in rural areas counted for 10.5 percent, growing slower compared to and smaller cities. other regions (from 3 percent to 8 percent to the rest of Africa, between 2010 and 2015). There is therefore con- b. Trade potential has not been fully utilized siderable potential for increasing exports to neighboring countries, but the relatively low degree of trade integra- • Trade has expanded, but export base has tion reflects the continued high trade costs. remained narrow. • Trade costs have been a major impediment Trade has increased over the past decade. Tanzania’s world market shares of goods and services exports Trade costs have been high and unpredictable. The doubled from 0.02 percent to 0.04 percent between costs of exporting products from Tanzania to its major 2004 and 2014. Its trade openness rose from an aver- markets remained high through 2005 to 2014, with age of 44 percent in fiscal 2005 to an average of 48.6 average bilateral trade costs recording only a modest percent in fiscal 2015, making it the most open economy decline from 310 to 275 percent. Average trade costs in the EAC (above Kenya at 47.9 percent, Uganda at 46.1 exceeding 150 percent for agricultural commodities for percent, Rwanda at 45.8 percent, and Burundi at 38.5 the 10 largest export partners in 2013 result in trade percent). However, Tanzania is still below the openness being crowded out or diverted to informal channels. level consistent with its per capita income, and trade growth of 6.2 percent recorded in the past decade was High costs divert trade to informal channels. A sub- slower than in some other EAC countries (9.5 percent in stantial portion of Tanzania’s trade goes unrecorded. Uganda and 9.3 percent in Rwanda). Comparing mirror trade data (that is, the value of Tanzania’s exports to EAC partner countries’ import data Despite the emergence of new products, trade is still for the same products) reveals substantial gaps, indicat- largely dependent on mineral and traditional agricultur- ing that informal exports from Tanzania to partner EAC al exports. These traditional products accounted for 80 countries could account for as much as US$262 million. percent of exports on average, between 2005 and 2015, Other estimates show that approximately 500,000 tons with the five largest destinations—India, South Africa, of maize were informally exported to Kenya in 2014, China, Kenya, and the Democratic Republic of Congo— amounting to more than US$150 million in value. This is accounting for almost 60 percent of total exports. Min- in addition to the dozens of thousands of metric tons of eral exports increased rapidly between 2005 and 2012 other crops, such as rice, dry beans, coffee, and cloves driven by higher gold prices, but have subsequently de- that are regularly exported to neighboring countries clined in line with fluctuations in international commod- through informal channels. ity prices. Agricultural exports are relatively diversified, including cereals, seeds, fruits, vegetables, and fish This ‘missing trade’ has a disproportionately negative and—since 2000 reforms in agricultural marketing—to- impact on small farmers and traders, and women in bacco, coffee and cashew. The diversity in agricultural particular. Women play a key role in small-scale, infor- exports is not matched by a range of manufactured mal agricultural trade. Estimates indicate that they products. Manufacturing exports are almost entirely may represent up to 70–80 percent of the total popula- accounted for by knitted apparel exports to the United tion of cross-border traders in East Africa, including in States, which are duty-free under the African Growth Tanzania. They typically reside in remote border loca- and Opportunity Act and have more than doubled from tions, often live below the poverty line, can be single US$17 million in 2014 to US$37 million in 2016. mothers or heads of households, and cross-border TANZANIA DTIS 2017 | xiv trade may be their main or unique source of livelihoods. and provides jobs for over 450,000 people. With world- Women also tend to be less educated than their male class wildlife and landscapes, Tanzania has a natural counterparts, experience lower access to finance, skills, comparative advantage to grow the sector and develop machinery, logistics, and distribution networks, and face much stronger links to agriculture, and other sectors. gender-specific cultural biases and harassment. As a Recent studies have identified tourism’s potential to gen- result, they are disproportionately affected by formal erate additional jobs by developing a range of products restrictions and informal trade hurdles. in beach, adventure, conference, and cultural heritage tourism. By diversifying its product range, Tanzania c. Diversification through exploiting links from can reach beyond the existing low volume, high-value traditional sectors is key to higher and more strategy that channels tourists to the northern circuit. broad-based growth Tourism is also an important source of livelihood and employment for women in Tanzania, yet they face an Agriculture provides the main source of income for array of gender-specific constraints ranging from occu- approximately 80 percent of the population. However, pational segregation to salary gaps and harassment investment and growth in this strategic sector, which in the workplace. In addition, sector-wide constraints remains vital to reduce rural poverty, continue to be generally experienced by small-scale operators such as held back by unnecessary trade regulations. Tanzania poor access to finance, limited and/or inadequate skills, has numerous regulatory agencies and complex trade and difficulties in coping with a complex fiscal and regu- rules that increase the costs of doing business, slow latory environment tend to be particularly burdensome down farmers’ access to new and improved inputs, for women. and prevent smallholders from competing on a level playing field with larger firms. Virtually all the regula- II. Key elements of the enhanced strategy to reduce tory agencies target 100 percent physical inspection, trade costs testing, and certification, rather than adopting a risk- based approach. Limitations on marketing, the use Driving trade costs down is key to promoting inter- of consignment-based export permits for maize, and national competitiveness and export diversification. the risk of a sudden policy change all serve to dis- Lowering Tanzania’s trade costs requires three key courage investment. steps aimed at broadening the economies competitive- ness and expanding trade in goods and services: Tanzania is endowed with large mineral and fossil fuel deposits, but the recent decline in commodity prices 1. Reduce the trade barriers limiting access to markets has delayed new investments, including in downstream for exporters, and reform regulations that increase processing. Tanzania is known for its high-grade gold the price of imported inputs. Removing the barri- reserves and a wide range of precious minerals includ- ers to regional trade in the EAC and Southern Africa ing Tanzanite. The sector consists of large-scale mining, Development Community (SADC) will disproportion- gas projects, and artisanal and small-scale mining. A ately benefit the poor. significant provider of jobs, in particular, artisanal min- 2. Improve the quality and transparency of trade- ing employs almost 700,000 people, with 27 percent related regulations by eliminating redundant regula- being women. Deepening the links from the mining and tions that no longer address public safety and wel- extractive sector through encouraging downstream fare concerns, simplify and streamline procedures processing has a potential to increase value added from that remain, and improve administrative efficiency mineral and fossil fuel deposits. But the decline in com- through strengthening capacity and targeting modity prices has resulted in the postponement of new resources through applying risk management. investments, including the further development of off- 3. Address logistics bottlenecks that increase supply- shore gas deposits. chain costs and prevent many poor people in rural areas to participate and benefit from trade. This Tourism is the sector with the highest job creation requires investment in both physical infrastruc- potential, but to date, this is not being realized. Tourism ture and regulatory reform to remove the existing accounts for 60 percent of the trade in services receipts policy hurdles. Executive Summary | xv a. Reduce trade barriers limiting access to export costs. Tanzania should continue to modernize cus- markets toms clearance procedures through implementing the national electronic single window system and adopting In addition to specific sector recommendations, the the EAC Protocol on One-Stop Border Posts. It is also key task is to simplify and streamline trade permits to important for Tanzania, with its commitment to continue reduce the regulatory burden on small businesses and upgrading Dar es Salaam Port, to introduce the port smallholders. While the rules apply to all firms, their im- community system. Improvements in electronic data pact varies—they are particularly burdensome for small management and electronic processing will permit firms. Large firms and multinational companies benefit Tanzania to increase the use of risk management and from economies of scale and frequently employ staff risk profiling. to comply with multiple regulatory requirements. Most permits can only be obtained in Dar es Salaam or occa- Risk Management is an effective strategy for curbing the sionally at branch offices in regional centers—a serious regulatory burden while strengthening enforcement of barrier for small businesses. Similarly, inspection costs health and safety norms. Risk management allows for are just not economical for small consignments. the most efficient use of scarce technical personnel and infrastructure and enables safer trade. Poor targeting b. Regulatory reform to address nontariff barriers of regulatory resources is costly. Subjecting already tested and authenticated products to retesting takes Nontariff barriers imposed at the border and “behind resources away from identifying and targeting higher- the border” contribute to Tanzania’s high trade costs. risk consignments. Requiring all regulatory agencies These include technical barriers to trade, sanitary and to adopt a risk management strategy will reduce the phytosanitary requirements, customs procedures, rules regulatory burden for compliant producers and traders of origin, trade, and transport regulations. Regulations and enable the Tanzania Revenue Authority (TRA), the are justified to deliver public policy objectives (health, TBS, and other regulatory bodies to ensure increased safety, and security). The problem is not with the prin- safety and security. This could be assisted through ciple of regulating—that is necessary. However, manda- requiring regulatory agencies to publish statistics on tory regulations should not be extended to address inspection, testing, or compliance rates. The World quality issues—these are best addressed through vol- Customs Organization’s Revised Kyoto Convention and untary standards. This would allow the Tanzania Bureau the recently concluded World Trade Organization’s Trade of Standards (TBS) to focus their scarce resources on Facilitation Agreement require members to adopt effec- ensuring product safety. The high trade costs largely tive risk management systems. result from the way the regulations are administered. Cumbersome and duplicative procedures, suspicion c. Reduce logistics costs against private sector traders, the importance of rev- enue levied at the border (from value-added tax on all Tanzania continues to face higher logistics costs and imports as well as tariffs on third-country imports), in more time-consuming processes relative to most of its conjunction with technical and staffing capacity short- regional neighbors. Logistics refers to the management ages result in high trade costs. of firms’ supply chain and is a key component in deter- mining their competitiveness. This relates to the effi- Increasing coordination, including information sharing ciency and reliability of transport infrastructure, border between all the agencies involved in border clearances, agencies, transport regulators, and services providers. will reduce trade costs at the border. Ensuring that all In 2016, Tanzania was ranked 180 (out of 189 countries) parties have ready access to accurate information on for ease of trade across borders, owing to long delays the regulations and administrative processes required and extensive documentation requirements. In 2016, for importing and exporting through a National Trade Tanzania remained 80 percentage points away from the Portal can reduce costly clearance delays. frontier (best performance). Encouraging the growth of the private sector requires a more supportive busi- Simplifying and streamlining border and regulatory ness environment. This requires the TRA to continue to border policies will increase revenue and reduce trade introduce trade facilitation reforms, including increasing TANZANIA DTIS 2017 | xvi reliance on risk management as a tool for restricting the such as lack of recognition in the current policy number of costly physical inspections. Further, regional framework, widespread informality and use of collaboration is key in reducing the trade costs. The unlicensed intermediaries, poor links with larger, more experience of the EAC One-Stop Border Posts indicates established value chains, and social and environmental that supporting physical facilities with necessary insti- risks associated with ASM techniques. Female artisanal tutional and regulatory reforms is key to reduction of miners then face gender-specific constraints, ranging border crossing times. from precariousness of their mineral rights, limited access to government-funded credit schemes for ASM d. Sector recommendations operators, and higher risks of harassment and cheating by fellow miners and/or intermediaries. In agriculture, Tanzania needs to simplify and intro- duce transparent marketing arrangements for exports Capitalizing on tourism’s potential requires streamlining crops such as maize. The imposition of product spe- the institutional management of the sectors and a fast cific export bans discourages investment, reduces the adoption of the new National Tourism Strategy. The tour- prices paid to growers, and exacerbates price fluctua- ism sector faces a series of development challenges, tions. Government concerns over food security have including an unclear legal and regulatory environment resulted in export restrictions being imposed at short which constrains both the approval and expansion of notice on basic commodities. Increasing policy predict- new and existing investments. The Ministry of Natural ability and improving access to information on trade Resources and Tourism has insufficient resources to restrictions and procedures would permit Tanzania effectively regulate the sector, manage existing assets to expand production and become a reliable exporter and implement development strategies. Creating more to the region. Limitations on marketing (which prefer- jobs and links throughout the economy requires actions ence selling to state-owned commodity boards), the focusing on addressing the skills shortage, ensuring use of consignment-based export permits for maize, land access for commercial development, streamlining and the risk of sudden policy change all serve to dis- the business-enabling environment, implementing the courage investment. new National Tourism Strategy, and streamlining the institutional management of the sector. Deepening links from the mining and extractive sector would enable Tanzania to increase the benefits e. Zanzibar from their large mineral and fossil fuel deposits. Restrictions on exports of raw tanzanite and the Zanzibar is renowned for its tourism and high-quality recently imposed export bans on the export of gold and cloves, and both agriculture and tourism have the copper ores aim to encourage additional processing potential to create thousands of new jobs. Zanzibar has and value-added activities in Tanzania. Deepening a young population, with more than half of the total links and achieving economic diversification is indeed 1.45 million under the age of 15. The Revolutionary essential for Tanzania’s development. But this will be Government of Zanzibar Development Vision 2020 and more effectively achieved by directly addressing the the Strategy for Growth and Reduction of Poverty (Draft constraints that inhibit investment in downstream MKUZA III) both highlight the importance of expanding processing. This includes addressing the business- the tourist sector and increasing productivity and value enabling environment challenges, skill shortages, or added in agriculture. With more than two-thirds of the other supply constraints. In particular, this includes population dependent on agriculture for their liveli- reducing the current uncertainty over investment hood, increasing productivity is essential for achieving a incentives, increasing clarity over the local content broad-based reduction in poverty. regulations, increasing access to primary mining licenses, and addressing skill shortages. Going Improvements to the business-enabling environment forward, it is important to develop clear guidelines are required. The business-enabling environment on mainstreaming gender equality concerns into the remains challenging with high costs and time-consum- artisanal and small-scale mining (ASM) governance ing processes crowding out small businesses from for- structures. Specific constraints face the ASM sector, mal registration. Streamlining business registration and Executive Summary | xvii licensing, property registration and tax administration regional integration also includes participation in the are identified as priority actions. Zanzibar has the poten- SADC Free Trade Area, the Tripartite Free Trade Area tial to realize significant growth in the cloves, seaweed, and engaging in the negotiations for a Continental Free fisheries, and livestock subsectors. Increasing invest- Trade Area. Removing the tariff and nontariff barriers to ment and deepening the links throughout the economy regional trade has the potential to shift Tanzania onto a from tourism requires improved coordination and plan- higher growth trajectory with real benefits from access- ning across government. The report recommends the ing a much larger market. This would create jobs and creation of a delivery unit with responsibility for devel- reduce poverty. oping and implementing the Zanzibar tourism strategy. Commitment to reducing corruption, improving gov- III. Lessons learned from the 2005 action matrix and ernment efficiency, and economic diversification to the dissemination of the new action matrix deliver jobs are positive. The election of President John Magufuli in November 2015 ushered in a strong com- Despite significant progress, many regulatory and policy mitment to reduce corruption and strengthen public issues identified in the 2005 action matrix remain valid. administration. Improved efficiencies within the TRA The DTIS update reviews the progress on implement- resulted in larger tax revenues in 2016. The commitment ing the 2005 DTIS action matrix and seeks to build on to deliver results quickly has resulted in new policies the lessons learned. Poor follow-up from the 2005 DTIS and regulations being implemented with immediate stemmed from systemic failures across a wide range of effect. These include measures targeting ‘abuses’ or stakeholders. Fundamentally, there was no ownership ‘corruption’ and policies aimed at promoting economic for implementing the recommendations by senior gov- diversification, however, rapid implementation can result ernment policy makers or officials. Further, there was in the government overlooking the unintended conse- little vocal private sector support for the recommenda- quences for both existing and potential future investors. tions and, finally, the relationship between development It is important to assess the regulatory impact prior partners and the Ministry of Trade was characterized by to implementation. divergent priorities. This DTIS update presents an updated action matrix The new Second Five Year Development Plan - 2016/17– that summarizes the recommended policy reforms. 2021/22 identifies these implementation challenges and The draft matrix was discussed by a wide variety of stresses the importance of learning from the experi- stakeholders, from the government, the private sec- ence. This positive development bodes well for the DTIS tor, and civil society at validation workshops in Dar Update which has been characterized from the outset es Salaam, and Stone Town in November 2017 and by active engagement from senior government officials, then after which the action matrix was finalized. Taken the National Implementation Unit and dialogue with the together, the action items will contribute to reducing private sector. The DTIS update provides an opportunity trade costs, thereby enabling Tanzanian businesses for development partners to support Tanzania realize and farmers to compete more successfully in regional its goal of increasing economic competitiveness through and global markets and realize Tanzania’s goals of improving the trade environment. expanding and diversifying exports for augmented growth and job creation. Despite progress in improving many aspects of the busi- ness-enabling environment and committing to regional The action matrix is prioritized according to the likeli- integration, many of the constraints identified in the hood of implementation based on stated commitments, earlier DTIS remain. Even with the improvements under the expected payoff in terms of economic impact, and the Big Results Now program the business environment the likely timing. remains challenging with Tanzania ranking lower that Kenya, Rwanda, and Uganda on the 2016 Doing Business indicators. As an active member of the EAC, Tanzania Note implemented the Common External Tariff in 2004 and joined the common market in 2010. The commitment to 1.  DTIS Report is available at http://mit.go.tz/dtis/. TABLE E.1: DTIS Priority Action Matrix Difficulty, payoff, and Identified constraint Monitoring indicators Responsibility priority timeframe Existing initiatives TRADE POLICY AND TRADE FACILITATION Action 1. Phase out export taxes and export bans. Export restrictions Tariffs or restrictions repealed MOF, MITI, MOA and MLF D=M None P=H T = ST Action 2. Establish dedicated gender desks at relevant government institutions, strengthen the capacity of women’s sector associations through capacity building, and convene regular consultations to gather their inputs on ongoing policy processes. Limited participation of women representatives in • Gender desks established, staffed, and funded • MITI, MOA, MEM, MNRT, TRA, D=L A gender desk already exists at trade policy-making processes • Training courses and awareness-raising cam- immigration, police P=H the MEM. paigns delivered and policy dialogue • Women’s business associations T = ST Action 3. Establish a National Trade Portal as the ‘go to’ place for information on all trade requirements including links to TBT, SPS, Commodity Boards. Difficulty in obtaining accurate (and legally enforceable) Trade Portal established, available online, and TRA, MITI, MOA, MLF and regulatory D=L Individual agencies are at various information on existing trade rules and procedures used by all agencies agencies P=M stages of developing their own T = MT websites and trade portals (for example, the TRA). Action 4.1. Update the Trade Facilitation Assessment. Action 4.2. Assess TANCIS’ effectiveness as an automation tool and undertake a feasibility study on efficacy of its use as the basis for the NSW (underway). Action 4.3. Approve the EAC OSBP Bill. Action 4.4. Provide training on risk management. Action 4.5. Increase stakeholder engagement in the Cargo Release Monitoring. • Multiple agencies with repetitive and duplicative • Trade Facilitation Assessment updated TRA, MITI, and regulatory agencies D=L • DFID is funding the baseline procedures. • Feasibility study completed P=H survey for implementation of • Absence of effective risk management practice in T =MT the NSW. multiple regulatory agencies. • The World Bank is designing a private sector project, which includes support to the TRA to implement the NSW. Action 5.1. Implement and raise awareness of the EAC STR at all EAC borders; initiate negotiations for a STR for other EAC borders. TANZANIA DTIS 2017 | xviii Action 5.2. Publicize the Traders Charter. Action 5.3. Establish toll free hotline for reporting abuse. High trade costs crowd out small traders from • Reports on use of STR (disaggregated by border TRA, MITI with others including D = L (agreement in • The government already formal trade. and gender) regulatory agencies (TBS) principle under EAC to committed to EAC STR; Zambia • Traders Charter Published implement STR) has similar STR framework. • Hotline established (annual report listing P=H • Traders Charter being promoted trainings, complaints resolved/outstanding) T = MT with Zambia at Tunduma. (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives AGRICULTURE Action 6.1. Establish an “agriculture trade portal” as a place to go for information on trade requirements including SPS requirements, free (clickable) TBS standards if mandatory, online application forms for all trade permits, and mandatory public notice of all trade restrictions or trade bans. Action 6.2. Mandatory trade requirements and trade restrictions (for example, export bans) must be transparent and well-advertised. Nontransparent and/or limited access to Platform established. All trade requirements MOA, MLF and MITI D = M (Technology exists but many Individual agencies at various stages of agricultural trade policies and procedural including positive list of products requiring to lead with TBS, agencies involved, each with own) developing own website and trade portals (for requirements. export license published, percent of permits TFDA, TAEC, TFRA, requirements. example, TFDA). needed for agriculture trade available online, TOSCI, and others P = H (Many benefits, particularly for number of clickable TBS standards, number of small scale trade.) hits per month. T = MT (for full platform, short for several specific improvements.) Action 7. Through the “agriculture trade portal” establish a way for all trade permits and other procedures to be completed electronically from anywhere in Tanzania. Many trade permits, trade licenses, and Platform established. Number and range of trade MAFC and MITI D = M (Technology exists but many Individual agencies at various stages of registration certificates can only be fulfilled by permits issued per month. to lead with TBS, agencies involved, each with own) developing own website and trade portals (for traveling to each agency’s headquarters. This TFDA, TAEC and, requirements. example, TFDA, TBS). affects all, but is a particular burden to small TFRA, TOSCI, and P = H (Many benefits, particularly for traders who lack effective economies of scale. others small-scale trade.) T = MT Action 8. Stimulate an ongoing national dialogue on benefits of risk-based approaches to risk management leading to actual procedural and regulatory reforms. Overlapping and/or unnecessarily rigid technical Successful engagement with key agencies measured MITI D = M (Easy to organize workshops Limited use of risk-based approaches by regulations. Specific constraints listed below .** by adoption of risk-based approaches (see below) and trainings, more difficult to get some agencies. Contrary to global best follow-up) practice, most effort focused on strengthening P = L (Real improvement depends on inspection capacity to achieve 100 percent actual reform, not just dialogue) coverage. T = Start immediately, then ongoing. Action 9.1. Allow for existing public and private test data from other countries to be used in granting product registration. Action 9.2. Eliminate the need for domestic trials where efficacy is already known and/or can be left to private competition (for example, mandatory farmer preference trials for seed, trials for new combinations of NPK, mandatory multi-year and multi-location trials for new agrichemicals). Time consuming and expensive procedures for Time required to release new varieties of seeds, MAF, TOSCI, TFRA, D = M to H (Some steps can be simplified • Domestication SADC Seed Agreement approving crop inputs (new varieties of seed, new fertilizer, and pesticides. Average number of new and TPRI (with without legislative reform. Requires underway. Acceptance of some varieties of fertilizer products, new agrichemicals) products registered before and after reforms. TBS and TFDA change of mindset, rents earned from potato seed from neighboring countries. Executive Summary | xix and others where current system would be lost) EAC protocol on mutual recognition of test needed). P=H results being developed. T = NT to MT • New fertilizer Act pending (shorter registration period, no testing of NPK combinations. (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives Action 10.1. Each agency to eliminate mandatory inspections and product registration requirements that do not have a direct and justifiable health or safety objective. Action 10.2. TBS and TFDA to agree on mutual recognition of each other’s product registration and testing procedures (possibly leading to a merged or single-window system). Overlap between TBS and TFDA product • Number of inspections reduced. TBS and TFDA*** D = M to H (Political economy of each Dialogue on MOU between TBS and TFDA registration and inspection requirements. • System for mutual recognition of each other’s organization favors multiple fees. National ongoing for long time. Despite some procedures put in place. law mandates both TBS and TFDA to progress, overlapping and unnecessarily perform similar functions.) ridged technical regulations remain in P=H force. T = NT to MT Note that many other overlaps exist (e.g. Dairy Board, Govt. Chemist, OSHA, etc.). Action 11. Review and revise standards for at least 5 strategic commodities making clear distinction between aspects that must be complied with on health and safety grounds and voluntary aspects used to determine product value. Suggest focusing on crops of greatest relevance to smallholder farmers and small traders in regional markets. All standards for food products treated as Number of TBS standards revised. TBS (with TFDA D = M (Requires political will and Review of EAC maize standard and other mandatory technical regulations yet include to minimize and information on how standards are product standards currently underway through nonessential quality aspects contrary to WTO eliminate duplicate used.) East Africa Grain Council. SPS and TBT agreements. requirements)**** P = H (Many benefits for small traders and consumer safety as a result only regulating (and inspecting for) what truly matters.) T = NT to MT Action 12. Consistent with international best practice, TAEC to adopt a risk-based approach to agrifood inspections based on acceptance test results from internationally-accredited laboratories and spot inspection of products from areas with little or no risk of radiation exposure and for known traders who previously passed the test. Fees for all traders significantly reduced due to fewer physical inspections. Mandatory radiation testing for all agrifood Develops and implements guidelines for a TAEC with MITI D = M (Technically but loss of Very limited. Some collective certification of imports and exports. risk-based inspections; records the number of revenue may require the government radiation-free areas for exports. tests and interceptions. subvention.) P = H (for small traders); M to H (for consumers due to more effective border control); L (large traders who can afford current fees) T = NT then ongoing. Action 13.1. Eliminate market restrictions to provide space for private sector engagement with small farmers. Action 13.2. Existing state channels may continue but should be competitive and without monopolistic protection. As appropriate, government may introduce guidelines for market behavior. Closed markets (official monopolies, single Elimination of existing monopolies and other MAFC, MITI, and D = H (Vested interests and mistrust of Varies. Cloves currently 100 percent state TANZANIA DTIS 2017 | xx channels, and other controls) for cloves, market restrictions. others. private sector may prevent real progress.) monopoly with little or no sign of change. coffee, cashew, cotton, and other major P = H (Many long-term benefits.) Cashew warehouse receipts "competitive" exports discourages large and small-scale T = MT at buying stage but only through single private investment. channel. Coffee offers various export routes but with heavy control by TCB. (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives Action 14.1. Eliminate administrative controls on domestic trade. Action 14.2. Improve monitoring of national food supply to head off potential shortages. Action 14.3. Reduce tariffs to fall within the agreed standard EAC CET tariff bands. Permits required to transport food and other Domestic trade restrictions abolished. MAFC, MITI, and D = M to H (Requires trust that any food None known. agriculture products across district borders. district authorities security risk will be offset by price with TAMISEMI signals and other systems.) (local government P = H (Would attract large and small authority under investment in production.) PM’s office) T = NT High tariffs on a small number of strategic Reduced tariffs published and enforced. MOF, MAFC, and D = H (Large mills and farmers will lobby None. Current efforts focus on enforcing tariffs products (for example, rice and sugar) MITI for maintaining protectionist policies; and preventing smuggling. difficult to build a consensus as benefits widely dispersed.) P = H (Many long-term benefits.) T = NT to MT MINING AND EXTRACTIVES Action 15. Implement a transparent and predictable taxation regime and revenue management system with timely reimbursements. Uncertainty of timely reimbursement of duties TRA reports TRA D=M The WB had a Tax Modernization Project in and VAT constrains financial planning for EI P=M Tanzania from 2006–11 supporting the TRA. T = ST Action 16.1. Improve educational system. Action 16.2. Provide vocational trainings. Action 16.3. Scale-up support programs for SMEs. Action 16.4. Coordinate support initiatives with EI companies. Action 16.5. Increase flexibility of the labor law to allow for on-the-job training by foreigners where needed. Skilled labor shortages, deficient access to Needs and gaps identified and published. MOEVT, MOLE, D = H (these are long-term engagements • Integrated Mine Technical Training Pro- finance, and infrastructure constraining potential MITI, MOWTC, that require significant resources) gram to increase local value added along the EI value MEM, MOF, Local P = H (could broaden industrial base and • Vocational training for construction and the chain. Content Unit transfer knowledge and technology oil and gas sector T = MT • Study to assess opportunities in local con- tent for the construction of the LNG facility • WB’s Tanzania Education and Skills for Pro- Executive Summary | xxi ductive Jobs Program and the Sustainable Management in Mineral Resources project (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives Action 17.1. Publish clearly defined and consistent regulations. Action 17.2. Alignment of duties and tariffs. Action 17.3. Employment regulations that facilitate on the job training. Conflicting trade and local content policies Local content regulations revised and published. MITI, MEM, MOLE, D = M (requires coordination among Not aware of initiatives addressing this (exemptions for EI companies on inputs, but not Local Content Unit various entities) constraint extended to potential suppliers; export ban on P=H tanzanite yet tariffs levied on inputs required T = ST for cutting and polishing; and restrictions on employing skilled foreign trainers). Action 18.1. Review SOEs’ roles and responsibilities Action 18.2. Consider merging STAMICO and the mining entity in NDC Action 18.3. Separate out regulatory and commercial functions to the extent possible, and fully clarify the roles of the TPDC now that the functions are separated Action 18.4. Put in place clear financial rules for state-owned companies Conflicting roles of SOEs SOE annual report and PURA and EWURA MEM and MITI D=H Natural Resource Charter Benchmarking annual reports. P = M/H Exercise currently being completed T = MT Action 19.1. Establish a legal distinction between small-scale and artisanal mining activities Action 19.2. Roll out awareness raising campaigns Action 19.3. Reward formalization through support initiatives Action 19.4. Decentralize the enforcement authority to regional and district offices, and invest in staffing and capacity building for Zonal Mining Offices Action 19.5. As part of PML application process, require successful applicants to commence mining operations, or face license revocation. Action 19.6. Strengthen Gender Desk at MEM • Slow formalization process of the ASM sector and Statute establishing legal distinction published MEM, MITI, D = H (formalization of the ASM sector is • The government has been following dual inadequate enforcement of compliance. MEM reports on awareness campaigns, formalization, Tanzania Chamber difficult to achieve) approach of attracting investment in the • Access to PMLs and to finance is particularly and PML activity, disaggregated by gender. of Mine, TAWOMA P = H (has the potential to improve the LSM sector and supporting the ASM sector limited for women in ASM. quality of life largest part of people • The MEM is setting aside mining areas for engaged in the EI sector in Tanzania) the ASM sector and will provide geological T = MT to LT data • The Tanzania Investment Bank provides ASM grants • The WB supports the government in ASM issues through the Sustainable Management TANZANIA DTIS 2017 | xxii in Mineral Resources project (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives TOURISM Action 20.1. Develop a new tourism policy that informs and prioritizes actions in a new national tourism strategy; and develop and implement a legal framework that increases inter government coordination and cooperation focused on specific targets for investment, job creation, and fiscal revenue. Action 20.2. Develop and implement a formalized coordination mechanism for public-private dialogue in tourism sector to develop a result and issue a driven work program. The legal, regulatory, and governance • Draft Tourism Policy published MNRT and D=L Consultants and Task Team Appointed and the framework for the tourism sector is constraining • Task Force Reconstituted -record of meetings other relevant P=H New National Strategy is being prepared its potential to deliver jobs, investment, and government T = ST increased revenue. Weak and inconsistent Policy agencies at and Planning Development. national, regional, and local levels, TCTP. Action 21. Undertake a labor supply gap analysis and develop programs and support measures for public and private training institutions to produce required tourism labor force. • Shortage of skilled labor for improved tourism • Undertake labor supply gaps analysis MNRT, TTB, D=M experiences is lacking due to weak education and • Develop programs and support measures for public Tanzania Tourism P = H training programs. and private training institutions to produce tourism Confederation T = MT • Work permits for international expertise are required labor force difficult to obtain. Action 22. Adopt and implement the BRN-BE Lab recommendations in tourism sector, especially a one stop-shop for tourism registration, licensing, and tax payments. The business-enabling environment for tourism is Number of recommended actions implemented. MNRT, TTB, MITI, D=M FYDP II commitment to improve the BEE. challenging, with multiple permits required across MOF, Bank of P=M multiple agencies at the local and national levels. Tanzania, HAT, T = ST Tanzania Tourism Confederation Action 23. Harmonize concession procedures and policies Unsecured tenure in protected areas for tourism Number of concessions successfully identified, taken MNRT, Tanzania D=M The WB’s Resilient Natural Resource accommodation investors to market, and investments realized. Investment P=H Management for Growth project and USAID’s Center, Wildlife T = ST southern Tanzania project. ICAS II program Management Areas Action 24. Strengthen data-collection capacity of relevant government institutions, and conduct industry surveys to capture gender-disaggregated statistics, including on salary gaps and occupations. Executive Summary | xxiii Lack of gender disaggregated data for the • Number of M&E staff appointed and trained MNRT, MITI, D=M None tourist sector • Gender-disaggregated industry surveys conducted Tanzania National P = M and data available on-line Bureau of T = MT Statistics, Bank of Tanzania (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives Action 25.1. Develop and implement a tourism sector backward links strategy. Action 25.2. Develop and implement capacity building program for relevant institutions to strengthen tourism backward links. Limited links between tourism sector and other • Adoption of the tourism backward links strategy and MITI, MNRT and The government, under the MNRT, is sectors which constrain the sector to grow. establishment/co-option of a tourism component/ other relevant reviewing the 1999 National Tourism Policy; counterpart in the implementation unit. government the new policy is expected to promote • Adoption of capacity building program for relevant agencies at sectoral links between tourism and other institutions. national, regional, sectors of the economy. Re-Grow project • Increased number of products or percentage of and local levels. promotes diversification from the Northern goods sourced locally for tourist consumption (star circuit and links with local communities. hotels). ZANZIBAR Action 26. Consider introducing a simplified tax regime for MSMEs, administered by a single entity and implemented through streamlined procedures (including, where possible, the use of mobile-money-based payments). Existing tax administration is challenging (two • One-stop MSME development center established. Ministry of Trade, D = M MKUZA III Commitment revenue authorities: TRA and ZRB) • Number of MSMEs registered with the new center. Industry and P=M • Percent increase in revenues collected from MSMEs. Marketing; TRA; T = MT ZRB; ZNCCIA Action 27. Establish a National Trade Portal as the ‘go to’ place for information on all trade requirements including links to TBT, SPS, and ZSTC Difficulty in obtaining accurate (and legally Trade Portal established, available online, and used ZRA, Ministry of D=L Individual agencies are at various stages of enforceable) information on existing trade rules by all agencies. Trade Industry and P = M developing their own websites and trade portals and procedures Marketing, Ministry T = MT (for example, the ZRB). of Agriculture and Fisheries, MLF and regulatory agencies Action 28. Remove the mandatory requirement for farmers to sell cloves to ZSTC Monopoly of Zanzibar State Trading Corporation for Sales data from Clove Industry and Government MOF and ZSTC D=H Potential long run goal. In the short run ZSTC purchase of cloves Statistics P=H to increase transparency on pricing and T = LT strengthen support services. Action 29.1. Regulatory agencies implement risk-based approaches. Stimulate an ongoing national dialogue on the benefits of risk-based approaches to risk management leading to actual procedural and regulatory reforms. Action 29.2. Ensure mutual recognition between mainland Tanzania and Zanzibar for all agricultural products. TANZANIA DTIS 2017 | xxiv Action 29.3. TAEC adopts a risk-based approach to agrifood inspections based on acceptance test results from internationally accredited laboratories and spot inspection of products from areas with little or no risk of radiation exposure and for known traders who have previously passed the test. • Overlapping and/or unnecessarily rigid technical • Successful engagement with key agencies measured Ministry of D=M • Limited use of risk-based approaches by some regulations. by adoption of risk-based approaches. Agriculture and P=H agencies. Contrary to global best practice, • Absence of risk management strategies for using • TAEC develops, publishes, and implements Fisheries, ZBS T = ST (ongoing) most efforts focused on strengthening scarce technical and staffing resources efficiency. guidelines for risk-based inspections. TAEC inspection capacity to achieve 100 percent • Mandatory radiation testing for all agrifood • ZAEC quarterly and annual reports listing coverage. imports and exports. inspections, interceptions, and test results • Very limited. Some collective certification of radiation-free areas for exports. (Table continues next page) TABLE E.1 (continued) Difficulty, payoff, and priority Identified constraint Monitoring indicators Responsibility timeframe Existing initiatives Action 30. Investment in laboratories and technical capacity. Ensure mutual recognition for all agricultural products accredited by mainland Tanzania regulatory agencies. Weak SPS infrastructure and technical capacity Ministry of D=M constrains animal-based exports and links to the Agriculture and P=H tourism sector Fisheries, ZSTC, T = MT private sector Action 31.1. Create a delivery unit responsible for the development of a strategy and its implementation Action 31.2. Strengthen data collection system and skills in the Ministry of Tourism Tourism strategy and tourism destination • Strategy developed and adopted Ministry of D=M development and management. Insufficient recent • Delivery unit formed and meeting regularly, Tourism leading P=H tourism related data tourism data (gender disaggregated) developed and but in partnership T = ST published with the private • Destination management entity established sector and other government departments Action 32. Ensure existing incentives are transparent and not discretionary. Weak incentives for investment in the fishery Record of investment flows to the fishery sector Ministry of D=M sector Agriculture P=H and Fisheries, T = MT Investment Promotion Agency Notes: D = difficulty; P = payoff; T = priority timeframe; L = low; S = small; M = medium; H = high; ST = short-term; MT = medium-term; LT = long-term; MNRT = Tanzanian Ministry of Natural Resources and Tourism; TCT = Tanzania Cultural Tourism Program; PPD = public-private dialogue; TTB = Tanzania Tourist Board; MIT = Tanzanian Ministry of Industry and Trade; MOF = Tanzanian Ministry of Finance; USAID = U.S. Agency for International Development; BRN-BE = Big Results Now-Business Environment; HAT = Hotels Association of Tanzania; and ICAS = Investment Climate Advisory Services; TAEC = Tanzania Atomic Energy Authority (Zanzibar Office); ZBS = Zanzibar Bureau of Standards; ZNCCIA = Zanzibar National Chambers of Commerce and Industries Association; ZRB = Zanzibar Revenue Board; ZSTC = Zanzibar State Trading Corporation. * In some cases genuine reform may require Acts of Parliament to eliminate overlapping mandates. ** Similar overlaps likely exist with the Zanzibar Bureau of Standards and the Zanzibar Food, Drug and Cosmetic Board. *** Legislative reform may be needed to eliminate overlapping responsibilities. **** May require working with other EAC countries on regional standards. Executive Summary | xxv TANZANIA DTIS 2017 | xxvi Abbreviations AGITF Agricultural Inputs Trust Fund AN ammonia nitrate ASA Agriculture Seed Agency ASDP II Agriculture Sector Development Programme Phase Two ASM artisanal and small-scale mining ASYCUDA++ Automated SYstem for Customs Data AWOTTA Association of Women in Tourism Tanzania BITs bilateral investment treaties BOT Bank of Tanzania BPRA Business and Property Registration Agency BPS bulk procurement system BRN-BE Lab Big Results Now - Business Environment Lab CAADP Comprehensive African Agriculture Development Program CBT Cashewnut Board of Tanzania CDF Coffee Development Fund CEM Country Economic Memorandum CET common external tariff CGCLA Chief Government Chemist Laboratory Agency CNG compressed natural gas CoC certificate of conformity COMESA Common Market for Eastern and Southern Africa CTE cultural tourism enterprise CTS compliant trader scheme DAP diammonium phosphate DB Doing Business DTIS Diagnostic Trade Integration Study EAC East African Community EAPP East African Power Pool EATWCA East African Tourism and Wildlife Coordination Agency Abbreviations | xxvii EI extractive industries EIF Enhanced Integrated Framework EITAA Extractive Industry Transparency and Accountability Act EITI Extractive Industries Transparency Initiative EPZA Export Processing Zone Authority EPZs export-processing zones ESSA Electronic Smart Subsidies in Agriculture EU European Union EWD exwarehouse declaration EWURA Energy and Water Utilities Regulatory Authority FBD Forest and Beekeeping Division fob free on board FTA free-trade area FYDP II Second National Five Year Development Plan GATS General Agreement on Trade in Services GDP gross domestic product GLTFP Great Lakes Trade Facilitation Program GTL gas to liquid HS Harmonized System ICF Investment Climate Facility ICT information and communication technology IGAD Intergovernmental Authority on Development IOCs international oil companies LDCs least-developed countries LGAs local government authorities LNG liquefied natural gas LPI Logistics Performance Index LSM large-scale mining MAFC Ministry of Agriculture, Food Security and Cooperatives MALF Ministry of Agriculture, Livestock and Fisheries MDAs mineral development agreements MEM Ministry of Energy and Minerals MITI Ministry of Industry, Trade and Investment MITM Ministry of Industry, Trade and Marketing MMCF million cubic feet MMSCFD million standard cubic feet per day MNRT Ministry of Natural Resources and Tourism MOF Ministry of Finance and Planning MOFD Ministry of Finance and Development MOU memorandum of understanding MTPA million tons per year MW megawatt NAIVS National Agricultural Input Voucher Scheme NAP National Agricultural Policy TANZANIA DTIS 2017 | xxviii NCT National College of Tourism NDC National Development Corporation NEPAD New Partnership for Africa’s Development NESW National Electronic Single Window NGUMP Natural Gas Utilization Master Plan NIU National Implementation Unit NMB National Microfinance Bank NPPAC National Plant Protection Advisory Committee NRDS National Rice Development Strategy NRGI Natural Resource Governance Institute NTFC National Trade Facilitation Committee NVRC National Variety Release Committee OPVs open-pollinated varieties OSBPs One-Stop Border Posts PAD prearrival declaration PARTS Pesticide Approval and Registration Technical Subcommittee PCS Port Community System PMD postmanifest declaration PML primary mining license PORALG President’s Office Regional Administration, Local Government POS port operating systems PSA production sharing agreement PURA Petroleum Upstream Regulatory Authority PVoC preexport verification of conformity QDS Quality Declared Seed R&D research and development RAC Radioactivity Analysis Certificate RECs Regional Economic Communities S&DT special and deferential treatment SACCOS savings and credit cooperative societies SADC Southern Africa Development Community SAGCOT Southern Agricultural Growth Corridor of Tanzania SAPP South African Power Pool SBT Sugar Board of Tanzania SDL Skills Development Levy SEZs special economic zones SMEs small and medium enterprises SPS Sanitary and phytosanitary SSA Sub-Saharan Africa STAMICO State Mining Corporation STR Simplified trade regime TACTO Tanzania Association of Cultural Tourism TAEC Tanzania Atomic Energy Commission TAFFA Tanzania Freight Forwarders Association TAFSIP Tanzania Agriculture and Food Security Investment Plan TALA Tourism Agency Licensing Authority TANCIS Tanzania Customs Integrated System TANESCO Tanzania Electric Supply Company TASTA Tanzania Seed Trade Association TBS Tanzania Bureau of Standards Abbreviations | xxix TBS Tanzania Bureau of Standards TCB Tanzania Coffee Board tcf trillion cubic feet TCT Tourism Confederation of Tanzania TCTP Tanzania Cultural Tourism Program TEUs twenty-foot equivalent units TFA Trade Facilitation Agreement TFDA Tanzania Food and Drugs Authority TFRA Tanzania Fertilizer Regulatory Authority TFS Tanzania Forest Service TIC Tanzania Investment Center TICTS Tanzania International Container Termina lServices TMAA Tanzania Minerals Audit Agency TMB Tanzania Meat Board TNBC Tanzania National Business Council TOSCI Tanzania Official Seed Certification Institute TPA Tanzania Ports Authority TPDC Tanzania Petroleum Development Corporation TPRI Tanzania Pesticide Research Institute TRA Tanzania Revenue Authority TRA Tanzania Revenue Authority TRIMs Trade-Related Investment Measures TRS Time Release Study TTB Tanzania Tourist Board TTF Tourism Task Force TTIS Tanzania Trade Integration Strategy TWB Tanzania Women’s Bank UN United Nations UNWTO United Nations World Tourism Organization USAID U.S. Agency for International Development VAT value added tax VDF Village Development Fund WEF World Economic Forum WRS warehouse receipt system WTO World Trade Organization WTTC World Travel and Tourism Council WVA Weight Verification Authority ZACPO Zanzibar Cloves Producers Organization ZBS Zanzibar Bureau of Standards ZFDA Zanzibar Food and Drugs Authority ZFDB Zanzibar Food and Drugs Board ZIPA Zanzibar Investment Promotion Agency ZMO Zonal Mines Offices ZNCCIA Zanzibar Chamber of Commerce and Industries Association ZPRP Zanzibar Poverty Reduction Plan ZRB Zanzibar Revenue Board ZSSF Zanzibar Social Security Fund ZSTC Zanzibar State Trading Company ZSTC Zanzibar State Trading Corporation 1 TANZANIA DTIS 2017 | 2 Introduction This Diagnostic Trade Integration Study (DTIS) update focuses on the trade-related constraints holding back Tanzania from diversifying and increasing its regional and global trade. The recent rapid growth has been driven by capital-intensive investments which have created relatively few jobs, however, the government is committed to realizing broad-based job creation throughout the country. Expanding income in the rural areas highlights the importance of increasing agricultural productivity, advancing regional trade, and increasing value-chain links to agricultural processing. The mining and extractives and tourism sectors have continued to grow, however, both face challenges in increasing their links within the economy. This DTIS update takes stock of the progress in implementing the priority recommendations from the earlier DTIS (2005)—specifically focusing on the action matrix agreed upon at the stakeholder meeting—and focuses on identifying and quantifying the trade costs constraining Tanzania’s competitiveness within regional and international markets, with a special focus on agriculture, mining, and tourism. This provides the basis for developing and presenting a streamlined and updated action matrix. Tanzania has sound macroeconomic fundamentals. The overall budget deficit is modest at 3.3 percent in fiscal "This Diagnostic Trade Integration 2014, and inflation remains below 5 percent. The 2015 Study update focuses on the elections resulted in some fiscal slippage, however, the overall deficit remained modest as capital expenditure trade-related constraints was under budget. Since acceding to the presidency in holding back Tanzania from November 2015, President John Magufuli has prioritized increasing Tanzania’s relatively low rate of tax revenue diversifying and increasing its collection. Tanzania faces a relatively favorable macro- regional and global trade." economic outlook which provides the government with a CHAPTER 1: Introduction | 3 historic opportunity to address many of the challenging levels of protection on a small number of sensitive prod- regulatory and policy constraints that keep trade costs ucts including sugar, rice, and textiles. The chapter also high and inhibit growth. presents evidence from the new World Bank/UNESCAP database on trade costs. The commitment to maintaining macroeconomic stabil- ity and improving the business-enabling environment Chapter 4 focuses on trade procedures, border clear- are prerequisites for benefiting from a trade-led growth ances, and trade logistics. Ensuring efficient and pre- strategy. Increasing investment in internationally com- dictable border clearances are essential for delivering petitive value-added activities also requires a reduction regional and global competitiveness. The Tanzania in trade costs. This DTIS update identifies and quantifies Revenue Administration has made significant progress specific trade costs that determine the availability and since the earlier DTIS in modernizing customs proce- price of inputs and the ability of producers to compete dures, however, serious challenges remain. The high in regional and international markets. The study focuses rate of physical inspections, more than 80 percent on trade policies, including regulatory issues impact- at the land border with Kenya, should be a source of ing trade, trade facilitation, and transport, and policies concern. The long-standing commitment to streamline affecting agriculture, mining and extractives, and tour- border agencies and establish a single-window has yet ism services. to be implemented, further, Tanzania is the only EAC- member state yet to ratify the One-Stop Border Post Although infrastructure constraints remain, and invest- Memorandum of Understanding. Tanzania should priori- ment is required, it is also necessary to focus on “soft tize introducing a comprehensive risk assessment pro- infrastructure.” It is important to note at the outset that gram with related post clearance audit, the Authorized the earlier DTIS was largely ineffective in addressing Economic Operator scheme, and other reforms as many of the broader issues requiring policy changes part of a strategy for implementing the World Trade and regulatory reforms. This DTIS update has taken Organization’s Trade Facilitation Agreement. place against the backdrop of the commitment from the government to more actively encourage private sector Chapter 5 takes a more in-depth look at recent per- investment in a more open and transparent framework.1 formance in the agriculture sector, which accounts The DTIS update focuses on specific trade-related policy for 30 percent of gross domestic product and is the and regulatory issues, many of which are in the man- main source of income for 80 percent of the population date of the Ministry of Industry, Trade and Investment (42 million people). The chapter looks at agriculture (MITI). Although many trade costs stem from “behind- through a trade lens. The agriculture sector is required the-border” regulatory structures and processes in line to comply with a complex web of trade rules, including Ministries (that is, agriculture, energy). licensing of imported inputs, export licenses, export restriction, and limitations on trade between districts Chapter 1 provides a short introductory overview of within Tanzania. The discussion focuses on farmers’ the key themes contained in the main report. access to agricultural inputs including seeds, fertilizer, and equipment, as well as on regulatory and procedural Chapter 2 provides a succinct briefing on the current constraints faced by small-scale agricultural traders macroeconomic situation and summarizes the status across borders. of the business-enabling environment. It takes stock of the progress made in implementing of the 2005 action Chapter 6 focuses on the regulatory framework in matrix and includes a political economy assessment of the gold, tanzanite, and natural gas subsectors. Gold obstacles to policy reforms. is Tanzania’s largest export by value, natural gas will potentially become the largest export when the offshore Chapter 3 describes Tanzania’s current trade policy deposits are developed, and tanzanite is uniquely found and trade performance, highlighting the narrow com- in the country. The government is keen to encourage modity composition and relatively modest change in value addition in these three subsectors and, in the case the share of intra-East African Community (EAC) trade. of tanzanite, has actively intervened to limit exports of A review of the existing tariff schedules noting the high the raw stones. The chapter examines the impact of the TANZANIA DTIS 2017 | 4 existing incentive regime and regulations on investment of Zanzibar and its cultural heritage as the “spice and competitiveness. The key development challenges island,” provides a strong basis for expanding tourism. include the uncertain and weak business-enabling envi- To date, most of the investments have developed tour- ronment, the local content regulations aimed at encour- ist “enclaves” with few links to the rest of the economy. aging upstream links, the unintended consequences The discussion focuses on how Zanzibar can unlock the of interventions aimed at encouraging downstream development potential of the tourist sector to generate value-added activities, and the absence of regional coor- more jobs and deliver broad-based growth. A tourism- dination. Particular attention is also given to the role of led development strategy requires a “whole of govern- artisanal and small-scale miners in Tanzania’s mining ment approach” that supports integrated planning and sector and to the specific set of challenges they face, policy, and backed by clear and transparent regulations including those that disproportionately affect women. to ensure efficient management of public infrastructure (roads, airports, environment regulations). The agricul- Chapters 7 takes a more detailed view of the tour- ture discussion focuses on cloves and spices, fisheries, ism industry in Tanzania. With the Morogoro and other and seaweed. The complexity of the business-enabling world-renowned game reserves, a long scenic coastline, environment, with cumbersome and multiple licensing and Mount Kilimanjaro, Tanzania is well-placed to benefit procedures, is identified as a serious constraint for all from tourism. Despite these natural assets, Tanzania businesses. The high cost of registration and burden- is performing below its potential. The chapter focuses some tax administration can be prohibitive for many on the constraints holding back further growth and small businesses. increasing linkages across the economy. The chapter focuses on the business-enabling environment and the Notes policy and regulatory framework governing the tour- ism sector, including in relationship to constraints that 1.  Examples include the “Big Results Now” initiative specifically affect small-scale tourism businesses. This and the constituent sector Labs, which included the work represents an input to the ongoing review of the government, the private sector, and experts, and the Tourism Policy and the updating of the National Tourism Second Five Year Development Plan - 2016/17–2021/22, Strategy. The chapter also analyzes a number of gen- which recognized the importance of learning from ear- der-specific constraints currently faced by Tanzanian lier mistakes and called for comprehensive evaluations. women in tourism. Finally, chapter 8 focuses on Zanzibar and looks more in-depth at the opportunities for expanding the key sectors of agriculture and tourism. The scenic beauty 2 TANZANIA DTIS 2017 | 6 Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned This chapter provides a brief macroeconomic summary of recent trends and the medium-term outlook, followed by a summary of the business-enabling environment drawing on the Doing Business Indicators of the World Bank, which permits countries to be ranked relative to each other and relative to global best practice. This chapter includes a review of Tanzania’s experience in implementing the recommendations validated in the original Diagnostic Trade Integration Study (DTIS), finalized in 2005. It also summarizes the key lessons learned from the 2005 DTIS, noting how this DTIS update will assist with realizing the policy vision of the Second National Five Year Development Plan (FYDP II). Finally, the chapter concludes with a brief summary of the DTIS focus areas. Macroeconomic Overview Tanzania’s economic growth remains high relative to other developing countries, despite signs of softening in the growth outlook. Tanzania’s economic performance continues to rank among the highest in the region. The real gross domestic product (GDP) growth rate has consistently outpaced its East African Community (EAC) peers (figure 2.1). In 2016, the country’s real GDP grew by 7 percent, marginally below the earlier forecast of 7.2 “Tanzania’s economic growth percent. Growth in agricultural production increased in remains high relative to other the first three quarters of 2016 compared with the same developing countries, despite period in 2015, while nonmanufacturing industry growth decelerated. The services sector expanded by 7.6 per- signs of softening in the growth cent in the first three quarters of 2016 period, roughly outlook. Tanzania’s economic a percentage point higher than recorded in the same period in 2015. Towards the end of 2016, high frequency performance continues to rank data suggest a difficult environment, including weaken- among the highest in the region.” ing business sentiment, slowing credit growth, and slow CHAPTER 2: Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned | 7 FIGURE 2.1: Growth continues to outpace East African Agriculture continues to provide a livelihood for approxi- Community comparators, 2011–16 mately two-thirds of households1 while accounting for 31 percent of GDP in 2015. Agricultural productivity 9 remains low with the recent modest growth stemming 8 from increasing land cultivation rather than increasing yields. Agricultural products generated more than 40 7 percent of total export earnings in 2014. Crops are the Percent 6 largest agricultural subsector and has been growing at a higher rate (average 4.9 percent between 2008 and 5 2013) than livestock (3.4 percent), forestry and hunting 4 (4 percent), and fishing (3.4 percent). 3 2011 2012 2013 2014 2015 2016e Services contribute more than 40 percent of GDP. Most Tanzania Kenya Uganda services in Tanzania are nontradeable services which results in services exports contributing only 7 percent Source: World Bank World Development Indicators. Note: E = Estimate. of GDP in 2013, notwithstanding their relatively high contribution to value added. Wholesale and retail trade pace of budget implementation, particularly for develop- remains the largest service sector at just over 10 per- ment expenditure. cent of GDP. Transport and storage is the second largest at 4.3 percent of GDP. During the period 2008–15, trans- Over the past 15 years, Tanzania averaged an annual port, communications, and financial services grew much (real) rate of growth of 6.4 percent, which is forecast by more rapidly than other service sectors. In the six years the International Monetary Fund to continue in the me- ending in 2013, communications averaged an annual dium-term through to 2018. The high real rates of eco- growth rate of 17.7 percent. nomic growth since 2000 have been driven largely by construction, transport, communications, and financial The economy continues to adjust to government pol- services sectors, which are relatively capital intensive. icies including tighter fiscal controls and improving In the period 2010–15, industry and construction ser- accountability of public institutions. Since taking office in vices registered annual average increases of 9.4 and 7.4 October 2015, President John Magufuli has spearheaded percent, respectively. These are all relatively capital-in- a strong policy direction of improving public adminis- tensive sectors and, except for construction, created few tration and clamping down on corruption. Improved tax new jobs. The labor-intensive agricultural sector regis- tered much lower average growth rates (see figure 2.2). FIGURE 2.2: Growth contribution by major sectors, 2004–14 Agriculture accounts for one-third of GDP, it remains the largest sector, followed in size by trade or distribution 7 (10.1 percent), construction (9.6 percent), and manufac- 6 turing (7.6 percent). These relatively high growth rates have reduced poverty levels. However, with most of 5 the growth occurring in capital-intensive sectors, the 4 Percent economy has only absorbed a fraction of the more than 700,000 people entering the labor market each year. The 3 2015 national poverty headcount ratio indicates that 28.2 2 percent of Tanzanians remain poor, with higher rates in the rural (agricultural) areas (World Bank 2015). Remov- 1 ing the barriers to investment and productivity growth 0 across the economy, and particularly in agriculture, 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 extractives, and tourism, are necessary for realizing Agriculture, forestry, and fishing Services broad-based and transformative economic growth that Industry and construction could remove millions out of poverty. Source: Derived from Tanzania National Bureau of Statistics 2015. TANZANIA DTIS 2017 | 8 administration has led to a substantial increase in the FIGURE 2.3: Inflation remained low, Feb 2012–Feb 2017 domestic revenues collected in 2016. In the past year, 40 the central government has put in place legislation 35 to regulate compensation and wages for the broad- 30 er public sector. This has strengthened the capacity of 25 the core administration to regulate the broader pub- 20 lic sector. While these public administration reforms are Percent 15 critical in strengthening accountability, they could al- 10 so impact the private sector via two channels. First, the 5 private sector relies significantly on government de- 0 mand for goods and services, and policies that limit this -5 demand will decrease private sector activity. Second, -10 policy adjustments, if they occur frequently, could cause Feb Feb Feb Feb Feb Feb uncertainty for the private sector, and this uncertainty 2012 2013 2014 2015 2016 2017 could dampen private sector investment decisions, with Headline inflation Food inflation Energy inflation negative implications for future growth. These implica- Source: Derived from IMF DataMapper tions would mean that the government should be more explicit about, and pay more attention to, the potential prices. Moreover, during the same period, receipts from unintended consequences of government policies on the tourism and transportation increased by 5.2 percent private sector. due to an increased number of tourist arrivals and vol- ume of transit goods to neighboring countries. The total Headline inflation has remained low and around the value of imported goods and services declined by 15.3 authorities’ target limit of 5 percent, although it may percent between the year ending January 2017 and the increase in the medium-term. At the end of February corresponding period in 2016. All major import catego- 2017, the rate stood at 5.5 percent, up from the figure ries declined, especially in capital and transport goods, of 4.5 percent recorded in October 2016 and remained except for industrial raw materials. The slow execution almost unchanged from the rate recorded in February of budgeted development spending partly explains the 2016 (figure 2.3). The recent gradual increase in head- decline in capital imports. line inflation has been driven by upward trending food and energy prices. The rate of food inflation notched The fiscal 2017 budget called for a fiscal deficit increase up from 5.1 percent in February 2016 to 8.7 percent in to accommodate higher levels of public investment and February 2017, due mainly to the increase in prices of the clearance of verified arrears. The deficit target of cereals, such as maize grains and flour, rice and beans. Moreover, energy and fuel inflation edged up from 4.4 FIGURE 2.4: Narrowing current account deficit, Jun percent at the beginning of 2016 to about 9 percent in 2013–Jan 2017 May 2016 and to nearly 12 percent in February 2017 on 0 account of rebounding global oil prices. -1 The current account has narrowed significantly, as exports grew modestly and imports fell significantly, -2 US$, billion especially for capital and transport goods. The current -3 account deficit stood at US$1.8 billion for the year ending January 2017, down from US$3.8 billion recorded for the -4 year ending January 2016 (figure 2.4). The total value of exports of goods and services increased by 5.1 percent, -5 led by strong performance in the export of minerals, -6 traditional crops, and tourism receipts. In particular, the Jun Jun Jun Jun Jan value of gold exports recorded considerable growth of 2013 2014 2015 2016 2017 29.8 percent due to increase in both export volume and Source: Derived from IMF DataMapper. CHAPTER 2: Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned | 9 4.5 percent of GDP was one percentage point higher being fully realized, especially development spending. than in fiscal 2016, reflecting plans to control recurrent This underspending curtails the intended stimulus to expenditures, increase revenue, and borrow more to economic activity, envisaged in the budget. Mobilizing invest in development projects. Recurrent spending is concessional external financing going forward remains slated to decline by about 2 percent of GDP. Domestic critical to execution of the budget and realizing invest- revenue collection is budgeted to increase to 16.9 per- ment plans. However, this requires acceleration of cent of GDP from the 14.8 percent outturn in fiscal 2016. preparation and implementation of planned projects and The target for overall public expenditure is 22.7 percent programs, including policy and institutional reforms. of GDP, 3.4 percentage points higher than in fiscal 2016. Lastly, despite government efforts to clear arrears (with Moreover, the budget reprioritized resources toward suppliers, pension funds, and state-owned enterprises), increased development spending, with a target of 46 its level remains significantly high, at 6.3 percent of GDP percent of overall spending compared to the figure of 23 (equivalent to T Sh 6.5 trillion) at end-June 2016, hence percent recorded in fiscal 2016. If realized, development presenting a public finance credibility issue and contin- spending would rise to 10.4 percent of GDP, compared gent liability-related fiscal risks. to 4.4 percent in fiscal 2016. The planned increase in development spending is set to be directed to projects Additionally, lower credit growth to the private sector, identified under the FYDP II, including the construction increasing nonperforming loans, and perceptions of of the Central Corridor Standard-Gauge Railway and weak economic conditions by business executives add the expansion of the Dar es Salaam Port. However, the further uncertainty to the growth outlook. The decelera- overall budget figure for development spending over- tion in domestic credit growth to both the government states the shift, as it includes some funds allocated for and private sector has prompted the Bank of Tanzania the clearance of verified arrears, as well as budget lines to reduce the discount rate recently. Net credit to the previously defined as recurrent spending. government contracted by 6.4 percent (year-on-year) in January 2017 compared with 12.4 percent increase in Despite improved domestic revenue collection, the gov- the corresponding period in 2016. Similarly, credit to the ernment is facing significant challenges in implement- private sector declined from 25.3 percent to 5.1 percent ing the fiscal 2017 budget. Between July and December between these two periods. The ratio of nonperform- 2016, revenue collection increased by 28 percent ing loans to total loans edged up to 9.5 percent at end- compared to the same period in 2015, mainly due to December 2016 from 6.4 percent at end-December 2015, improved tax administration efforts. Similarly, expen- reflecting a downward risk to banks’ profitability and ditures were 6.4 percent higher over the same period. future lending. Moreover, banks have been navigating However, spending has fallen significantly short of bud- the new environment created by the government’s deci- get targets. Through December 2016, overall budget ex- sion to centralize public institutions’ bank accounts at ecution against the target for fiscal 2017 was 28 percent. the Bank of Tanzania rather than at commercial banks, In particular, development expenditure through Decem- leading to a decline in deposits estimated to be around ber 2016 was only 20 percent of the annual target. This T Sh 600 billion. The directive has affected banks’ liquid- underspending curtails the intended stimulus to eco- ity at least in the short-term. nomic activity, envisaged in the budget. Development budget underspending is largely explained by external The macroeconomic fundamentals are basically sound. financing shortfalls. This shortfall was largely explained In fiscal 2017, total public debt was 34.2 percent of by delays in project preparation and implementation GDP, the current account deficit declined significantly that curtailed concessional financing, as well as very to 2.4 percent, and the overall fiscal deficit was 4.5 limited nonconcessional external borrowing given a cau- percent. Tax revenue collection increased from 12.4 tionary approach by the government due to high costs. percent of GDP in 2015 to 15.8 in fiscal 2017, although it remains one of the lowest in the region. During 2015, Fiscal risks remain the key macroeconomic risks in the the Tanzanian shilling depreciated by approximately 20 medium-term, including the risk of underspending nega- percent against the U.S. dollar, however, this largely tively impacting growth. The government’s growth pro- reflected the strengthening of the U.S. dollar as the jections are based on the budget’s expenditure targets Tanzanian shilling remained relatively stable against TANZANIA DTIS 2017 | 10 other major currencies (for example, euro). Through Macroeconomic performance through 2016 remained 2015, Tanzania made progress in addressing several strong, with real GDP increasing by 7 percent (MOFD outstanding fiscal issues, including developing a strat- 2017). The president’s commitment to address evasion egy to address budgetary suppliers and pension arrears has boosted tax revenue, however, as noted, spend- and finalizing the policy paper on good principles for a ing was under budget owing to external financing fiscal framework for managing revenues from natural constraints and delays in spending authorizations. The gas. While the recent election resulted in a degree of fis- banks have high capital and liquidity ratios and are cal slippage, the budget shortfall was relatively modest generally profitable, however, the percentage of nonper- as capital expenditure was slower than budgeted. forming loans increased to 8.7 percent (in June 2016). Most of the increases were in the manufacturing and Inflation has declined from 26 percent in 2005, to 11 real estate sectors, however, agriculture remained the percent by 2012, to 4.7 percent by 2014, and in October largest sector. The average rate of nonperforming loans 2016, headline inflation was 4.5 percent (figure 2.5). This masks significant variations within the banking sector. has been due to prudent monetary policy, a favorable The Bank of Tanzania is committed to strengthening food situation, and declining fuel prices. Driven by gold the resilience of the banking sector through increasing and tourism (or travel) receipts, exports have remained minimum capital levels, increasing the number of bank strong, and imports have continued to increase, primar- examiners, and reconstituting quarterly meetings of the ily due to imports of capital and intermediate goods, Tanzania Financial Stability Forum.2 particularly oil, resulting in a current account deficit of approximately 11 percent of GDP. While capital inflows The macroeconomic outlook remains favorable. The continued, foreign reserves declined by 10 percent dur- International Monetary Fund’s Policy Support Instru- ing fiscal 2015. In fiscal 2017, the fiscal deficit was 4.5 ment (PSI) forecasts a growth rate of 7 percent through percent of GDP which was marginally larger than the 3.5 fiscal 2017. This is underpinned by continued growth in percent in the previous fiscal year. the services sector and an increase in public investment as new infrastructure projects get underway. Capital Lower oil prices have resulted in a positive terms-of- expenditures are budgeted to more than double to 11 trade shock that reduced the size of the current account percent of GDP, however, implementation challenges are deficit. However, as a potential future exporter of oil and expected to result in a more modest increase. The PSI natural gas, reduced commodity prices have pushed out has identified fiscal policy implementation as a poten- the timelines for the foreign direct investment required tial short-term risk to the favorable economic outlook. for extracting the resources. Specifically, tightening liquidity with slow or delayed budget disbursements resulting from external financing FIGURE 2.5: Real GDP and inflation, 1980–2015 shortfall, and the risk of growing domestic arrears if public investment runs ahead of improvements in public 10 40 financial management. 35 8 % change of consumer price index 30 Business-Enabling Environment 25 The business environment in Tanzania remains % change of GDP 6 20 challenging. The World Bank’s 2016 Doing Business (DB) report ranks Tanzania 139 out of 189 countries 4 15 (see figure 2.6); it ranked lower relative to Kenya (108), 10 Rwanda (62), and Uganda (122). Figure 2.7 shows 2 Tanzania’s DB ranking relative to South Africa, Mauritius, 5 and nonregional comparator countries. This shows 0 0 that Tanzania is ranked lower against both Indonesia 1980 1985 1990 1995 2000 2005 2010 2015 and Vietnam and significantly lower than Mauritius. GDP Consumer price index Enabling Tanzania to benefit more fully from the export Source: Derived from the Tanzania National Bureau of Statistics 2015. and growth opportunities offered by both the regional CHAPTER 2: Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned | 11 FIGURE 2.6: Doing Business Indicators, 2010–16 Ease of doing business Starting a business Dealing with construction permits Registering property Getting credit Paying taxes Trading across borders 80 90 100 110 120 130 140 150 160 170 180 190 Rank 2010 2012 2014 2016 Source: Derived from World Bank Doing Business data. FIGURE 2.7: Doing business indicators: Overall, Tanzania and requires the government and districts to reduce and selected countries, 2016 streamline many of the remaining regulatory barriers to establishing and operating commercial enterprises. 1 18 Malaysia 32 Since 2010, Tanzania’s overall ranking on DB has Mauritius 49 fluctuated around the 70th percentile as improvements Thailand in dealing with construction permits and registering 73 South Africa property were offset by relative deteriorations in other 90 criteria. The trading across borders indicator shows Vietnam a significant decline over the period 2010–16, with Rank 109 Indonesia Tanzania moving from the 60th to the 95th percentile 139 relative to 189 countries. Tanzania Trading Across Borders Despite infrastructural improvements and customs 189 modernization, in fiscal 2016, Tanzania remains in the Source: Derived from World Bank Doing Business data. bottom 5 percent of performers of trading across borders DB indicator. Following the introduction of and global economy requires improving the business electronic data interchange and improved border environment; facilitating trade and regional integration cooperation recorded in the 2006 DB report, no fur- within the East African Community (EAC) and the ther reforms in trading across border were recorded Southern African Development Community (SADC); and until 2012, when the prearrival declaration system and making credit more readily available and affordable, electronic submission of customs declaration were especially to smallholders. The relatively low rankings introduced. In 2013, importing became more onerous for registering property and paying taxes indicate the with the requirement to obtain a certificate of conformity necessity of addressing governance and accountability prior to the goods being shipped. The 2015 and 2016 DB issues. The government has taken positive steps to reports, recorded improvements as infrastructure was strengthen macroeconomic fundamentals and has upgraded at the port of Dar es Salaam and the Tanzania committed to improving tax compliance, however, Customs Integrated System was rolled out, respectively. ensuring the benefits of economic growth are Notwithstanding these recent improvements, relative to distributed more widely requires further reforms to the best practice, Tanzania has fallen behind on the trading incentive structure facing small businesses and small across borders measure. Since 2014, it has slipped from holders. Increasing policy certainty and predictability the 60th to the 20th percentile. The DB reports for 2015 TANZANIA DTIS 2017 | 12 and 2016 show the time required to import remained FIGURE 2.8: Doing business indicators: Trading across border, broadly constant at 26 days, while the cost of compli- Tanzania and selected countries, 2016 ance increased by 6.8 percent. Over the same period, 100 the time required for exporting a container declined from 18 days to 8 days while the cost increased by 32.6 percent. 123 Malawi 128 Uganda 131 The cost of importing and exporting a container (in real Kenya U.S. dollars) declined over the period 2006–14. The DB reports present a consistent series of trading costs Rank 154 156 for the period 2006–14. During this period, the cost of Burundi Rwanda importing—defined as the cost of clearing one 20-foot container—declined by 6.3 percent in real terms, while the cost of exporting declined by almost 30 percent. 180 During the same period the divergence between import Tanzania 189 and export costs increased from 11.5 to 48 percent. Mozambique 189 Source: Derived from World Bank Doing Business data. For a country with a major port, Tanzania has a very low ranking on the trade facilitation component of the DB indicators. With a DB ranking of 180 in 2016 (figure compliance costs for exports. It is also notable that in 2.8), Tanzania has the lowest ranking within the EAC Tanzania documentary compliance for exports is larger (which includes the landlocked countries of Burundi and than for imports. In the rest of the EAC documentary Rwanda). Trading across borders is Tanzania’s weakest compliance costs for imports are significantly larger indicator in the DB,3 whether measured relative to than for exports. East Africa generally has high import other countries (180th out of 189 countries) or relative compliance costs with Burundi being an outlier. It is to the best performing country (0.2/1.00). Tanzania, notable that all the fast-growing export comparators with relatively sound infrastructure, does not appear in South East Asia have significantly lower costs when to be benefiting from its geographical location (figures compared with the EAC. Tanzanian exports appear to 2.9 and 2.10 show the relatively high compliance and face particularly onerous customs compliance costs customs clearance costs). Indeed, landlocked Burundi, (figure 2.10), indeed the country is an outlier within Rwanda, and Uganda all have lower documentary the region. FIGURE 2.9: Documentary Compliance Costs for Imports and FIGURE 2.10: Border Compliance Costs for Imports and Exports, Tanzania and Selected Countries, 2016 Exports, Tanzania and Selected Countries, 2016 Malaysia Burundi Uganda Kenya Rwanda Rwanda Vietnam Uganda Burundi Vietnam Kenya Malaysia Tanzania Mozambique Mozambique Tanzania 0 100 200 300 400 500 600 700 800 900 1,000 1,100 0 200 400 600 800 1,000 1,200 US$ US$ Import Export Import Export Source: Derived from World Bank Doing Business data. Source: Derived from World Bank Doing Business data. CHAPTER 2: Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned | 13 Trade and Poverty in society which may constrain their ability to participate in economic activities. Between 2007 and 2012, the basic needs poverty level declined from 34 percent to 28.2 percent. A World The DTIS update seeks to identify the specific con- Bank (2015) report estimated that 28.2 percent of the straints facing the poor from participating more fully in population were unable to meet their basic consumption the major economic sectors selected for more detailed needs, while 9.7 percent were extremely poor and assessment, namely in agriculture, mining and extrac- could not meet their basic nutritional needs, during tives, and tourism. the same period. They estimated that poverty declined by 1 percent per year from 2007 to 2012. The report Implementation of the 2005 DTIS found that, in the same period, the poor benefited disproportionately from the rapid economic growth. Action Matrix The pro-poor growth resulted from improvements in the endowments (better education, improved access The final report and validated action matrix for the to services, and better communications) and increased earlier DTIS were submitted in November 2005, follow- returns from economic activities (through improved ing approval at a National Validation workshop. The access to markets). 2005 DTIS report assessed both domestic and external constraints to Tanzania’s integration into the world Despite these positive developments, poverty remains economy, with a detailed review of trade policies and widespread in the rural areas, where 85 percent of trade performance, trade-related institutions, the state the poor live. The number of people defined as living of trade facilitation and transport, identification of the in poverty remains very sensitive to the poverty line. issues and opportunities in the major agricultural sub Increasing the rate by US$0.50 per day will change the sectors, and the opportunities for export diversification. rate by more than 20 percent. Using the international poverty line of US$1.25 per person per day increases Tanzania implemented reforms validated in the ear- the incidence to 43.5 percent (2011/12). lier action matrix across a range of areas. The earlier DTIS was formally approved by cabinet in 2007, after Increasing trade through reducing trade costs has been which, national consultants reviewed the action matrix a key element in reducing global poverty. Bartley Johns and developed the Tanzania Trade Integration Strategy and others (2015) highlighted the critical importance of (TTIS). Following further internal discussions, finalized in reducing trade costs to further integrate markets as a 2009, with the revised prioritized action matrix covering pathway for reducing poverty. The report highlighted the period 2009–13. The Second National Development strategies for ensuring the poor benefit from increased Strategy for Growth and Poverty Reduction (MKUKUTA trade openness. II) and MKUZA for Zanzibar, covering the period fiscal 2011 to fiscal 2015, recognized trade as an engine of Trade is a critical enabler of economic growth and economic growth and envisaged Tanzania becoming a higher growth is necessary for poverty reduction. regional trade and logistics hub. The Ministry of Indus- Reducing tariffs and removing nontariff barriers are try, Trade and Investment (MITI) established the Proj- necessary, but must be integrated with measures aimed ects and Programs Coordination Unit as the Enhanced at addressing specific constraints faced by the poor. The Integration Framework (EIF) National Implementation poor are frequently excluded from markets and face Unit (NIU) and recruited a project coordinator and proj- specific challenges. The report focuses on four char- ect analyst. The NIU has strong participation from key acteristics that impact the ability of the poor to benefit stakeholders in both the government and the private from trade. These are rural poverty, fragility and con- sector. An EIF Tier 1 project was launched in 2013. flict, informality, and gender. Internal barriers to trade in rural areas, including licensing, local taxes, marketing Despite positive reforms, many of the constraints iden- restriction, and organizational requirements, may repre- tified in the earlier DTIS remain. Notwithstanding this sent prohibitive barriers to poor farmers. Women often progress, Tanzania experienced challenges in address- face specific constraints, both within the household and ing the large number of constraints identified by the TANZANIA DTIS 2017 | 14 earlier DTIS.4 The 2005 DTIS adopted an economy-wide is occurring in a very different policy environment. approach while also examining selected subsectors in Demands for improved governance and economic more detail. The subsector studies included agricultural competitiveness are much stronger today than they export crops (cashews, coffee, cotton, and tea), horticul- were a decade ago, and the new administration has ture and floriculture, tourism, spices, and fish. In addition a strong commitment to achieving these goals. The to the logistical challenges in implementing such a large DTIS update can therefore play a very positive role in and diverse group of policy and regulatory reforms, the assisting the new government in achieving its stated subsequent inability to establish a TTIS earmarked fund economic competitiveness priorities as articulated in its also constrained implementation.5 Thirdly, significant chief economic policy statement, the FYDP II. regional and global developments, including natural resource discoveries and rapid changes in commodity Poor Follow-Up on the 2005 DTIS prices, require the updating of the action matrix in the The poor follow-up to the 2005 DTIS stemmed from sys- earlier DTIS. temic failures across a range of stakeholders. The most basic reasons for weak implementation were because (1) The 2005 DTIS had too many action items. It listed 124 no level of government took ownership of implementing actions that were tailored for individual commodities. In the recommendations, (2) there was little vocal private hindsight, this approach provided little guidance on the sector support for the changes, and (3) the relationship overall directions for trade policy and, for various rea- between development partners and the MITI deterio- sons, was difficult to implement. Since the earlier DTIS, rated due to divergent priorities. The poor follow-up there have been significant developments nationally, on the DTIS was not specific report, but consistent with regionally, and at the global level. The update provides many similar plans over the past ten to fifteen years. an opportunity for Tanzania to better align its trade The FYDP II forthrightly acknowledges the most typical policy and strategies with its commitment to economic challenges for the Tanzanian government to implement diversification and poverty reduction. development plans, like the DTIS. The DTIS update builds on lessons from the earlier The 2005 DTIS action matrix suffered from a lack of study. The 2005 DTIS did not realize many of its ambi- ownership and a disagreement between the donors and tious recommendations. The 2017 DTIS update need not the MITI over programming. Many of these problems suffer the same fate. This section discusses the reasons were evident in attempts to implement the 2005 DTIS for the poor follow up to the 2005 DTIS and assesses recommendations. That the DTIS was a low priority did prospects for implementing the recommendations in not mean that weak implementation was inevitable, how- the DTIS update. In general, there are solid reasons to ever. To understand why requires examining the actions believe the DTIS update can have a more positive impact of the actors charged with overseeing the implementa- on Tanzania’s trade policy than the 2005 DTIS. tion of the DTIS recommendations, the Development Partners Group (DPG) and the Department of Policy and The DTIS update is timely with the government’s Planning within the MITI. commitment to improving the business environment and promoting economic diversification. Starting in There was a lack of ownership from the MITI, in part the early 1990s, the Tanzanian government began resulting from reform fatigue. More specifically this implementing a wide range of reforms to liberalize and included: policy indecision, frequent changes in leader- privatize the economy, as well as improve governance ship within the MITI, and lack of staff capacity resulted in and public administration. Although many of these little urgency to address the issues the DTIS raised. For changes were necessary, they often faced significant example, there were four ministers between 2005 and resistance and strained government capacity. By the 2010. Along the same lines, a KPMG’s (2010) assessment early 2000s, the government’s interest in further reform of the MITI concluded that the ministry suffered from began to wane and momentum in implementation high levels of staff turnover and numerous vacancies; stalled. The release of the 2005 DTIS occurred near both severely impeded its effectiveness. Consequently, the beginning of this policy shift. The DTIS update instead of prioritizing recommendations in the DTIS, the CHAPTER 2: Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned | 15 to individual government initiatives and to private sec- BOX 2.1: Implementation Challenges Identified in the FYDP II: tor efforts. Lessons Learned There was no organized private sector pressure on • Policy incoherence, instability, and unpredictability, specifically “weak alignment of policies, procedures, planning, and the MITI to implement the 2005 DTIS. In part, this was coordination, reflected in lack of consensus among key because, at the time, there were few sector-wide trade stakeholders and ultimately policy reversal.” associations that possessed the capacity to collectively • Corruption engage with their government counterparts to address • Weak prioritization, “mostly in the design stage where policy challenges. Consequently, in general, follow-up everything is considered as ‘priority.’” • Inadequate mobilization of financial resources actions from the DTIS tended to occur only in areas • Inadequate decentralization where preexisting donor interest intersected with rec- • Weak systems for follow-up, monitoring, and evaluation ommendations from the report. Two clear examples are • Delayed decision making, in particular, a “combination of policy the Southern Agricultural Growth Corridor of Tanzania incoherency, policy instability and unpredictability, on one hand and corruption on the other hand, result in slow decision- (SAGCOT) and the horticulture sector. The SAGCOT making process…Slow in decision making has repelled emerged out of Kilimo Kwanza (Agriculture First), a top investors, especially international investors with several priority of the previous administration. The Tanzanian country options for investment destinations.” government announced it at two high-profile venues: the Source: Extracted from MOF (2016). 2010 World Economic Forum (WEF) Summit on Africa Note: FYDP II = Second Five Year Development Plan. in Tanzania and the 2011 WEF annual meeting in Davos. Because the program seeks to facilitate private sector investment in Tanzania, it received a large amount of MITI asked various donors to choose the programs they support from the WEF. Success in horticulture exports, wished to support. by contrast, was a result of a clear investment opportu- nity that required little effort from the government and Secondly, there was a disagreement over resource investors faced no domestic opponents. management between the DPG, who wished to target specific projects, and the MITI, who requested broad Lessons from the 2005 DTIS budget support to implement their priorities. In an attempt to bridge the divide between these two differing Principal lessons from the experience of the follow-up sets of priorities, the DPG offered to support a basket on the 2005 DTIS include: fund if the MITI created a qualified and fully-staffed NIU. At the time, the NIU had seven people and the • Government priorities matter. The scope for reform DPG suggested growing the office to between 15 and and opportunities for engagement with the Tanzanian 20 people. The MITI responded that the Public Service government are largely determined by the strategic Management Department was unlikely to approve this priorities of the president. Currently, there is consider- request. Concurrent to these negotiations, the EIF able interest and pressure from the new administra- Secretariat approached the MITI and offered to fund tion to improve trade policy and the business-enabling the capacity-building component as a separate project. environment to promote investment, create jobs, and The MITI agreed to this approach, but the DPG objected deliver improved living standards to the majority of to it because it would remove their ability to shape that the people. aspect of the program. The DPG subsequently asked the • Ensure ownership from the MITI. There were EIF Secretariat to channel its resources to the basket early signs that the MITI did not feel the 2005 DTIS fund. The MITI rejected this option and chose to have the reflected its priorities. Although the initial validation EIF directly support the capacity-building efforts of the workshop secured high-level participation from the NIU. In response, in 2012, the donor facilitator, between MITI, momentum slowed soon after. Identifying the the DPG and the MITI over the DTIS implementation, key personnel within the MITI and their priorities withdrew its support. DPG-MITI talks have not occurred is critical. Active participation, for example, in since then. Rather, the DPG is channeling their support prioritizing recommendations and sectors, as well as TANZANIA DTIS 2017 | 16 determining ex ante the key MITI staff responsible for and implementation stages, weak resource implementation seems useful. In addition, an agreed mobilization strategies as well as supervision, upon realistic implementation timetable can also help monitoring and evaluation. set expectations. • Reach out to private sector supporters. Unlike in The administration has made it clear that the FYDP II 2005, there now exists a much more powerful set of will not suffer from these shortcomings. It devotes an private sector stakeholders that are likely to support entire chapter to developing an implementation strategy the recommendations in the DTIS update. It would and demonstrates a coherent theoretical focus by draw- be useful to engage them from the beginning of the ing on experiences of countries it wishes to emulate, process, such as through commenting on drafts and especially in East and Southeast Asia, as well as a few in having active participation in validation workshops. Sub-Saharan Africa. This might also include hosting a workshop solely for the private sector. DTIS Update Focus Areas • Manage donor-MITI relations. Problem of reform fatigue notwithstanding, more substantial progress The DTIS update can advance FYDP II priorities. The in implementation was possible if the DPG and coun- most promising way to ensure the DTIS update does terparts from the MITI would have overcome their not meet the same fate as its predecessor is to use it differences. From the MITI’s perspective, donors as an opportunity to help the new government advance were pursuing an agenda that was inconsistent with FYDP II priorities. the priorities of the Tanzanian government. Donors, by contrast, did not sense that the MITI was serious FYDP II has put more emphasis on about addressing its staff capacity shortcomings. industrialization and openness to the regional Overtime, these differences led to accusations of ulte- and global trade than before. This will require rior motivations on both sides, as well as causing the concerted efforts to…ensuring availability of MITI to embrace a course of action—accepting stand- conducive environment for doing business and alone funds from the EIF Secretariat—that led to talks investment. The envisaged industrialization… over DTIS implantation to collapse. Finding a neutral has to be based on the country’s comparative arbiter to resolve the conflict early might have led to a advantages, upgrading and innovativeness much more positive outcome. with a focus to integrating into the regional and global value chains…(FYDP II) Policy Vision of the Administration and the DTIS Update The DTIS update presents the opportunity for develop- The DTIS update presents an excellent opportunity to ment partners to assist the Tanzanian government to support the government to realize its own priorities. The achieve its goals on trade policy reform and improved DTIS update identifies the policy, regulatory, and institu- economic competitiveness. The FYDP II benchmarks tional actions required for delivering the FYDP II goals to reach these objectives include increased exports of of job creation, economic transformation, and industrial- agricultural products, greater agricultural processing, ization. The DTIS update is occurring at the early stages and improvements to a range of DB indicators, such as of enacting the Tanzanian government’s new economic regulatory reforms to improve trade facilitation and the policy, the FYDP II. The document is candid in its assess- business environment. ment of the poor outcomes of previous similar national development plan. The DTIS update has five focus areas, agribusiness, min- ing, regional integration, tourism, and trade facilitation Weak implementation has been a persistent largely overlap with the FYDP II priorities and/or build setback for Tanzania. The FYDP sets down on existing private sector interest: several reasons; including incoherent policies and procedures, weak prioritization and • Agribusiness: Agribusiness has a prominent posi- sequencing of initiatives, vested interests, tion in the FYDP II, including targets for maize, rice, weak engagement of stakeholders in planning cotton (and textile production), sisal, leather, grapes, CHAPTER 2: Macroeconomic Overview, Business-Enabling Environment, and the 2005 DTIS Lessons Learned | 17 horticulture, edible oils, beef, poultry, chicken, dairy, goods. Therefore, Tanzania’s trade policy regime still and fisheries, as well as improvements in rural infra- needs to find an appropriate balance between ensur- structure, capacity-building, and addressing market ing consumer safety and facilitating private sector failures. These goals are building on improvements development. The FYDP II does not discuss how the in the agro-processing industry that have occurred government will meet these competing priorities. The over the past few years. The most prominent example DTIS update therefore represents an excellent oppor- is horticulture exports. Export-quality dairy products, tunity to advance this dialogue. nuts, wine, and edible oils are also becoming more common. For these reasons, the DTIS focus on agri- Notes culture overlaps strongly with the FYDP II. • Mining and extractives: The new government’s poli- 1.  When indirect income from agriculture (distribu- cies on small-scale mining are the least developed. tion, services, storage, and so on) is included agriculture The FYDP II only has two paragraphs on planned provides the main income source for approximately 80 interventions. In addition, the Ministry of Energy and percent of the population. Minerals is at a very early stage in developing a new 2.  In December 2015, the Bank of Tanzania had non- minerals policy. The World Bank can therefore play a performing loans data on only 27 of the 49 registered useful role in assisting the government to develop a banks. more comprehensive plan for developing this part of 3.  The other indicators include: starting a business, the mining sector. dealing with construction permits, getting electricity, • Regional integration: The outlook for improvements registering property, getting credit, protecting minority in regional integration are promising. The most impor- investors, paying taxes, enforcing contracts, and resolv- tant change is Tanzania’s much improved relations ing insolvency. with Rwanda. Although the auspicious outlook for 4.  One hundred twenty-four action items were identi- EAC integration is still in its early days, it has already fied and validated in the 2005 DTIS action matrix. moved beyond rhetoric. The clearest examples are 5.  Many development partners were constrained by several recently announced joint infrastructure proj- their country’s policies from contributing to a multidonor ects with Kenya, Rwanda, and Uganda. There are also basket fund. opportunities for increased regional trade with SADC economies, particularly with the Democratic Republic References of Congo and Zambia. • Tourism: While tourism is not an FYDP II priority, Bartley Johns, Marcus, Paul Brenton, Massimiliano Cali, reforms to create a more competitive tourism sector Mombert Hoppe, and Roberta Piermartini. 2015. The seem promising. First, the trade associations within Role of Trade in Ending Poverty. Geneva: World Trade the sector are strong, largely share the same vision, Organization. and have a clear set of reforms they desire. Second, KPMG. 2010. Politics and Change in Tanzania: An the two main government agencies covering the sec- Analysis of Actors, Reforms and Social Processes. tor, the Ministry of Natural Resources and Tourism Amsterdam: KPMG. and the Tanzania Tourism Board, are very support- MOF (Tanzanian Ministry of Finance and Planning). ive of the needs of the sector. Third, the Minister of 2016. National Five Year Development Plan 2016/17 – Finance has stated publicly that tourism will be the 2020/21. MOF, Dar es Salaam. pilot sector for reforming the business environment. MOFD (Tanzanian Ministry of Finance and Development). • Trade facilitation: The FYDP II unambiguously 2017. Ministry of Finance and Development Budget states that it seeks to achieve export-led growth Speech. June 8. MOFD, Dar es Salaam. and improve the trade policy environment. Yet the World Bank. 2015. Tanzania Mainland Poverty government is equally as committed to stopping the Assessment (Vol. 2). Washington, D.C.: World Bank. importation of substandard and sometimes hazardous 3 TANZANIA DTIS 2017 | 18 Trade Policy and Trade Performance This chapter outlines aggregate trends in export per- formance since the earlier Diagnostic Trade Integration Study (DTIS) 2005, comparing Tanzania with its regional partners, and focusing on intraregional trade. This is followed by a discussion of trade policy focusing on Tanzania’s existing trade agreements prior to describing the structure of nominal protection, which measures the price-raising impact of tariffs under the general tariff, and other duties that are applied. This is followed by a summary of the trend in Tanzania’s trade costs with regional partners using the new World Bank trade costs database, before discussing recent findings on the rela- tionships between trade and poverty. Finally, the chap- ter concludes with recommendations aimed at reducing the policy bias against exports. The overview of Tanzania’s trade performance is based on the United Nations Comtrade data and draws on the recent World Bank report “Uncovering Drivers for Growth and Diversification of Tanzania’s Exports and Exporters.” The DTIS documents the changes in both the commodity composition and the geographical direction of imports and exports. “The share of traditional and The 2005 DTIS review of export performance, over the nontraditional exports was period 1990–2003, identified tourism and gold exports broadly constant from 2010 to as the major growth sectors. In 2003, tourism and gold were the largest and second largest items, respectively. 2015. With the rapid increase in Over the same period, nontraditional merchandise exports from the mining sector, exports increased much more rapidly than the tradi- the share of traditional exports tional agricultural exports and, by 2003, accounted for 80 percent of total merchandise exports. Nontraditional (tea, coffee, cotton, tobacco, exports included gold, fish and fish products, and hor- cloves, and cashew) declined ticulture exports. Throughout the period 1990–2003, most of Tanzania’s exports were destined for developed from a peak of 60 percent in industrial economies with the European Union (EU) 1998 to 21 percent in 2003.“ accounting for over 60 percent and Japan 10 percent. CHAPTER 3: Trade Policy and Trade Performance | 19 India and China accounted for 9.9 and 2.6 percent, CET has three bands of zero percent on raw materials respectively. Virtually all of Tanzania’s metal ore exports and capital goods, 10 percent on intermediate goods, were destined for Japan, while cotton, cashew nuts, and and 25 percent on final goods. Tariffs on a small number vegetables went to India. Although regional exports to of sensitive products (61 tariff lines) are higher than Kenya, Malawi, and Zambia remained modest—account- 25 percent and thus do not comply with the three-tier ing, in aggregate, for 9.2 percent of total exports in structure of the CET. Agricultural products account 2003—their share had more than doubled since 1990. for the majority of sensitive items and include milk (60 percent), wheat (35 percent), corn (50 percent), The share of traditional and nontraditional exports rice (75 percent or US$345 per metric ton), and was broadly constant from 2010 to 2015. With the rapid sugar (100 percent or US$ 460 per metric ton). Some increase in exports from the mining sector, the share of manufacturing products like cement (35 percent), traditional exports (tea, coffee, cotton, tobacco, cloves, primary cells and batteries (35 percent), matches (50 and cashew) declined from a peak of 60 percent in 1998 percent), and Khanga, Kikoi, and Kitenge fabrics (50 to 21 percent in 2003. According to a report by the Bank percent) are also included in the sensitive list. In 2010, of Tanzania (BOT 2016), traditional exports declined after a five-year transitional period to allow for tariff further to just above 15 percent in fiscal 2012 after adjustment in some countries, imports among EAC which they increased to 18.5 percent in fiscal 2015. The members were fully liberalized. report also found that the decline in the price of gold resulted in a decline in the total value of nontraditional The tariff structure has not changed much since the exports (minerals, manufacturing, floriculture, horticul- adoption of the CET in 2005 with the exemption of the ture, and fish) over the period fiscal 2012 to fiscal 2014. sensitive products. Tanzania’s tariff schedule has 5,437 The decline in gold receipts were offset by increased tariff lines with the vast majority of them falling in one of revenue from travel services, primarily tourism, which the three standard CET rates: 37 percent of tariff lines exceeded US$2 billion in fiscal 2015 (BOT 2016). pay zero duties, 21 percent pay a 10 percent tariff, and 40 percent pay a 25 percent duty. About one percent of tariff lines are part of the sensitive list and pay tariffs General Duty Schedules and Tariffs above 25 percent. In the WTO, Tanzania bound 13.5 per- Tanzania is a founding member of the World Trade cent of tariffs at 120 percent, comprising all agricultural Organization (WTO), the East African Community (EAC), products (as defined by the WTO) and one-tenth of one and the Southern African Development Community percent of nonagricultural products also at 120 percent. (SADC). Tanzania plays an active role at the WTO, regularly submitting notifications to the Technical Table 3.2 shows the most-favored-nation rates minimum Barriers to Trade committee and participating in the and maximum tariffs and standard deviation by the least-developed countries (LDCs); African; and African, main sectors. The animal and vegetable products and Caribbean, and Pacific groups. Tanzania served as the LDC focal point on the Trade Facilitation negotiations prior to the agreement. On the continent, Tanzania TABLE 3.1: Tanzania’s Tariff Structure is implementing the EAC Customs Union, the SADC No. of tariff lines CET (%) % of tariff lines Free Trade Area, and is actively participating in the 2,011 0 36.90 negotiations for the EAC-Common Market for Eastern 1,170 10 21.50 and Southern Africa (COMESA)-SADC Tripartite Free 2,194 25 40.40 Trade Area. It participates in the United States-EAC 13 35 0.20 Trade and Investment Framework Agreement and 1 40 0.02 has concluded (but not signed) the EAC-EU Economic 19 50 0.35 Partnership Agreement. 16 60 0.29 4 75 0.07 9 100 0.17 Tanzania has applied the EAC common external tariff Total = 5,437 (CET) since 2005 on all most-favored-nation imports. Source:  Derived from World Integrated Trade Solution. (Table 3.1 shows Tanzania’s tariff structure.) The EAC’s Note:  CET = Common External Tariff. TANZANIA DTIS 2017 | 20 TABLE 3.2: Sector Groups Ex Ante Most-Favored-Nations Tariffs export processing zones (EPZs), and special economic HS code Sector % Min. Max STD zones (SEZs). All of these have different incentives and 01-05 Animal products 25.5 0 60 9.16 minimum export requirements apply under all three 06-15 Vegetable products 19.2 0 75 11.52 schemes. Under the duty drawback scheme, duties 16-24 Foodstuffs 23.7 0 100 14.58 charged on imported inputs used for producing goods 25-26 Minerals 4.1 0 25 7.02 for export (or for transfer to an EPZ) are refunded. The 27 Mineral fuels 5.8 0 25 7.65 manufacturing under bond scheme provides for the 28-38 Chemicals 2.9 0 40 7.25 exemption of all duties and taxes on imports of capital 39-40 Plastic and rubber 10.6 0 25 9.90 requirement and inputs used in the manufacture of 41-43 Hides and skins 14.1 0 25 7.95 exports and is designed for companies producing solely 44-49 Wood 13.2 0 25 10.25 for the export market. 50-63 Textiles and clothing 20.8 0 50 9.24 64-67 Footwear 21.9 0 25 8.20 The Export Processing Zone Authority (EPZA) was 68-71 Stone and glass 18.6 0 25 9.11 launched in 2006 to manage and implement the EPZ 72-83 Metals 9.6 0 35 9.08 and SEZ schemes. The legislation was modified in 2011 84-85 Machinery and electrical 6.1 0 35 8.86 86-89 Transport equipment 6.9 0 25 9.86 by the Economic Zones Laws Act, which provides for a 90-98 Miscellaneous 14.7 0 25 11.36 wide range of fiscal incentives including the remission of Source:  Derived from World Integrated Trade Solution. customs duty, value-added tax, and other taxes on raw Note:  HS = Harmonized System. materials and capital goods used in the EPZ. Provision was also made for providing lower port charges (rela- foodstuffs sectors contain the highest maximum tariffs tive to the cargo box rate) and firms were permitted to and have the highest standard deviation. This reflects sell up to 20 percent of their goods to the domestic mar- the high level of tariff protection provided to the sugar, ket. The EPZA incentives are only available to new inves- corn, wheat, milk and rice sectors. tors. To date, six industrial parks have been designated.1 Investments are concentrated in agriprocessing, light High tariffs charged on some goods risk reducing the engineering, apparel production, and mineral process- competitiveness of downstream industries or the incen- ing, with exports destined for the United States (under tives for domestic production. For instance, sugar— the African Growth and Opportunity Act), the EU (under which is a key input for many food products like baked the Cotonou Agreement), South Africa (under SADC), and goods, fruit juices, carbonated drinks, preserved fruits, India (most-favored nation). among others—attracts a very high tariff (100 percent or US$ 460 per metric ton) that could impact the competi- Duty rebates and remission are widespread. In fiscal tiveness of industries that use it as an input. Although 2014, trade taxes accounted for 15.5 percent of total usually duties for sugar imported by industrial users are tax revenue. The average statutory (ex ante) import reduced under the Duty Remission Scheme, it seems tariff weighted by imports was estimated at 7.85 per- that only a few firms benefit from the scheme (25 firms cent in 2005 and 6.54 percent in 2015. An earlier study in 2014) as the process to apply or lobby for inclusion estimated the collection rate in 2014 at approximately in the scheme might be beyond the resources of many 4 percent (Cunningham and others 2015). The differ- small- and medium-sized firms. Similarly, tariffs on ence between the ex ante rate and the ex post rate is textiles inputs that range from 10 to 25 percent might explained by the widespread use of rebates. reduce the prospects of developing a domestic apparel industry which has proven a good way of generating Incentive Regime jobs in other African countries. The escalating tariff structure and the widespread use of rebates creates a large dispersion in protection lev- Tariff Policy and the Use of Rebates els. For those firms using largely imported inputs, with Tanzania has multiple schemes offering import duty relatively low domestic value added, the ability to obtain remission for exporters. Export promotion programs duty rebates creates substantial incentives to sell into include duty drawback, manufacturing under bond, the EAC market rather than to produce for export. While CHAPTER 3: Trade Policy and Trade Performance | 21 the nominal rate of protection (as measured by the price taxing exports accounted for 0.18 percent of total tax raising effect of the tariff) may be relatively modest in collected in 2012. most cases (10 or 25 percent), the effective rate of pro- tection provided to a firm may be much higher. The ef- Regional Integration fective rate of protection measures the combined effect of price distortions (caused by tariffs) on both the inputs Tanzania is implementing the EAC Customs Union CET and the outputs. It measures the proportion by which a with exceptions for selected agricultural commodities firm’s value added at domestic prices differs from that (wheat and corn, processed pulses, wheat flour, olive would be realized if the prices of its products and inputs oil), iron and steel structures, grinding and cutting were not distorted through tariffs. Positive effective machinery, and vehicles. rates of protection indicate that domestic industries can operate with a higher level of value added that would be the case with lower tariffs. This increases domestic BOX 3.1: Example of Effective Rate of Protection profitability and/or permits reduced levels of efficiency which limits future expansion into potential export mar- A food-processing factory, employing 75 persons, produces kets. Even relatively modest tariff rates (10 percent) can cooking oil for the domestic market. Its main input is the bulk generate significant effective protection in the domestic import of sunflower oil, which enters duty free. Other inputs, such market. A simple example is shown in box 3.1. as bottles, containers, and packaging materials and consumables, are conservatively assumed to be purchased at world prices, Activities with high levels of protection will grow at a as are nontraded goods, such as electricity, water, and security charges. The total value of all inputs accounts for 70 percent of lower rate, and create fewer jobs than sectors with the total value of the ex-factory price of the cooking oil. Sunflower lower rates of effective protection. Lowering tariffs on cooking oil is protected in the domestic market with a tariff of 20 both inputs and outputs, including final products, will percent. significantly reduce the effective rate of protection and The firm produces 3 million liters of oil at US$2 per liter per year moving towards a more uniform tariff, through gradu- in domestic prices. Assuming all production is sold domestically, ally phasing out some of the tariff peaks (defined by the this generates an annual turnover of US$6 million. At world WTO as all tariffs exceeding 15 percent) will reduce the prices, 70 percent by value is either imported or sourced locally. dispersion of effective rates. With a zero tariff on the inputs, the firm pays 0.7 of the total sales at world prices, which is 0.7[(US$6 million (0.83)] for all its inputs, US$3.499 million. Assuming it sells all its production domestically Export Duties at US$6 million, it then realizes domestic value added of US$2.501 million which is shared between employees (labor) and the Tanzania levies an export tax on three items, raw hides owners (returns on capital). However, if the firm were to sell its and skins, cashew nuts, and wet blue leather. The rate product overseas, it would have to sell at world prices (US$1.67 per liter) because other countries also protect their domestic of export duty on raw hides and skins is 80 percent or cooking oil production with a 20 percent tariff. Therefore, any US$0.25 per kilogram, whichever is larger. This policy sales outside the East African Community would only realize aims to ensure the 7 privately owned tanneries can 83 percent of the price achieved in Tanzania. Assuming the firm access their raw materials at low prices. The export tax were to sell all its production overseas, its total revenue would decline to US$4.998 million. Although it would have a positive serves to reduce the prices paid to farmers and discour- value added, it would be reduced significantly to 16.5c per liter ages the production of higher-quality hides and skins. relative to producing for sale in the domestic market where The export tax should be reduced with the aim of being value added would be 83.1c per liter. The firm would try and phased out as tanneries upgrade their equipment and expand its domestic production before entering foreign markets increase their competitiveness (Dinh and others 2013). as the former is much more profitable. If the firm could sell duty free (though Southern African Development Community tariff There is a 10 percent export tax on wet blue leather preferences) into neighboring markets, which were also protected aimed at encouraging the domestic leather processing by a tariff on the final product, this would also be more profitable industry. This measure depresses the profitability of the than selling to the world market. tanneries as most of the tanneries only process to the Under these assumptions, value added on sales in the domestic wet blue stage. The export tax on cashew nuts also has market is more than double the value added on sales in the the unintended effect of depressing the prices paid to foreign market. The effective rate of protection is 125 percent. smallholders and farmers. The revenue collected from TANZANIA DTIS 2017 | 22 On the EAC Common Market Scorecard, Tanzania through the Tripartite. Following the SADC-COMESA- scores the lowest on trade, but has registered the most EAC Tripartite Summit held in June 2011 in Johan- improvement between 2013 and 2015. Tanzania is not nesburg, there are ongoing attempts for instituting the yet complying with the directive that customs authori- Tripartite FTA negotiations. This DTIS review will inform ties issue the Certificates of Origin, and nonrecognition the in-depth analyses regarding the priority barriers to of the certificates by border officials remains a problem. trade in goods, especially nontariff measures, the top The EAC Scorecard lists four persistent nontariff barri- barriers to trade in services, the main improvements ers: lack of harmonization of working hours for customs, in trade facilitation and business environment, and the lack of coordination among institutions involved in test- necessary capacity building activities. This DTIS update ing, lack of harmonization of road user charges, and var- aims to identify specific actions that will reduce trade ious monetary charges levied on the export of milk. EAC costs and deepen economic integration in the region. partner states have designated 58 goods as ‘sensitive’, which renders them eligible to declare tariffs above the Barriers to deepening regional integration in East Africa EAC maximum CET of 25 percent. are mostly at the policy level, and there is a disconnect between commitments made under regional agree- The SADC Free Trade Area removed most tariffs by ments and implementation on the ground. Numerous 2012, however, restrictive rules of origin on key agricul- studies have been carried out on regional integration tural and labor-intensive sectors continue to limit the issues in terms of trade and transport. One of the most potential for trade creation. The SADC has advanced recurring findings of these studies is that the barriers towards a fully-fledged free-trade area (FTA), which was to regional integration in the subregion are not just launched in 2008, and aimed to attain maximum tariff physical, but that there are a number of institutional liberalization in 2012. In 2011, audit of the FTA observed barriers currently impeding integration efforts. The a tripling of intra-SADC trade in the last decade, costs to address these barriers, given the necessary although exports were noted to be mainly coming from political will and commitment, are modest compared to South Africa. The SADC Regional Economic Integration some of the other investments required, but the poten- Support program has ambitious plans that include a tial benefits are significant. In the EAC, one significant common market by 2015, a monetary union by 2016, and institutional impediment is the lack of coordination and a single currency by 2018. However, increased coopera- complementarity between the trade and transport poli- tion is more likely in specific sectors, particularly energy cies of the various states. Countries have committed and transport. There are relatively advanced plans for themselves to developing harmonized and complemen- member countries to link their power grids to help to tary policies, however, these commitments generally create a regional power pool, and further proposals remain on paper only, while each state still approaches to develop cross-country infrastructure projects are policy development as a domestic exercise, reflecting also expected. only national priorities (Mousley and others 2014). The SADC FTA aims to facilitate the movement of goods There is scope for complementarity between the DTIS through regulatory and administrative measures. These update and ongoing and pipeline regional integration include, harmonized customs procedures and customs projects in East Africa. For instance, a project of the classifications; increased custom cooperation; reduced World Bank, aims to support EAC countries, includ- costs by introducing a single, standardized document ing Tanzania, to eliminate barriers to regional trade in (single administrative document) for customs clearance goods and services, covers similar regional integration throughout the region and establishing One-Stop Border issues as this DTIS update. The DTIS has identified a Posts (OSBPs). For example, the OSBPs in Tanzania and range of constraints holding back increasing regional the Democratic Republic of Congo is close to completion; and international trade. The World Bank project will however, it remains to be analyzed whether they are focus on removing nontariff barriers (such as unneces- achieving their objectives. sary requirements and fees), simplifying regulations and procedures and applying them in a transparent and pre- As a member of both the EAC and SADC, Tanzania may dictable way, and improving access to information and have a special role to advance regional integration new technologies. CHAPTER 3: Trade Policy and Trade Performance | 23 Trade Performance percent). However, Tanzania is still below the trend line suggesting that its openness to trade is below the level This section provides an overview of Tanzania’s recent suggested by its per capita income (figure 3.1). trade performance. Beginning with a summary of Tanzania’s trade openness in comparison with its The world market share of Tanzania’s goods and ser- regional partners, prior to discussing the evolving vices exports doubled over the last decade, although it geographical direction of imports and exports and started from a small base. Tanzania saw an increase in the changing commodity composition since 2005. The its world market share of goods and services exports review of trade performance over the past decade is from 0.02 percent to 0.04 percent between 2004 and based on the commodity composition of trade at the 2014 (figure 3.2). Among its EAC peers, Tanzania showed Harmonized System (HS) 6-digit level from the United the third highest compound annual growth rate of 6.2 Nations Comtrade database.2 There is considerable percent, compared to Uganda (9.5 percent), Rwanda (9.3 anecdotal evidence that trade flows are consistently percent), Kenya (1.1 percent), and Burundi (6.1 percent). underreported at borders and trade statistics risk pro- viding an incomplete picture of the actual trade flows, Tanzania remains dependent on agriculture and particularly for trade with neighboring countries. In minerals exports, which accounted for a combined 80 order to shed light on one aspect of this underreported percent of total exports on average between 2005 and trade, this DTIS update examined mirror trade data for 2015. Mineral exports increased rapidly between 2005 EAC intra-regional trade as imports from the EAC were and 2012 as a result of the high prices fetched by the compared with partner exports. most important mineral export in the country (gold) and declined afterwards as a consequence of the dip Although Tanzania became more open to trade over in international prices. Agricultural exports grew at the last decade, its openness is still below the level ex- modest rates during the first part of the last decade (7.4 pected of a country at its per capita income. Tanzania’s percent annualized rate between 2005 and 2011), but total trade openness has improved modestly over the growth accelerated considerably between 2012 and 2015 last decade, rising from an average of 44 percent in fis- (20.8 percent annualized rate). Manufacturing exports cal 2005 to an average of 48.6 percent in fiscal 2015. As remained below 20 percent during the last decade, a result, Tanzania is the most open economy in the EAC, with very little changes in participation in total exports slightly more open than Kenya (47.9 percent), Uganda and the possible exemption of a small uptick in textiles (46.1 percent), Rwanda (45.8 percent), and Burundi (38.5 and apparel exports towards the end of this period. FIGURE 3.1: Openness to Trade, 2014–15 FIGURE 3.2: Share in World Exports of Goods and Services, 2004–14 200 0.05 0.04 150 Trade relative to GDP (%) 0.03 Percent 100 0.02 0.01 50 Burundi Kenya Uganda 0 Rwanda Tanzania 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 6 8 10 12 Tanzania Uganda Burundi Log of real GDP per capita (PPP) Kenya Rwanda Source: Derived from World Bank World Development Indicators. Source: Derived from World Bank World Development Indicators. TANZANIA DTIS 2017 | 18 FIGURE 3.3: Exports by Sector, US$ million, 2005–15 FIGURE 3.4: Share of Total Exports by Sector, 2005–15 3,000 60 50 2,000 40 US$, million Percent 30 1,000 20 10 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Agricultural Mineral Agricultural Mineral Textile and apparel Other manufacturing Textile and apparel Other manufacturing Source: Derived from United Nations Comtrade. Source: Derived from United Nations Comtrade. Overall, although the relative shares of agricultural and growth of agricultural exports, the intensive margin mineral exports diverged during part of the last decade, (exports of old products to old regions) accounted for 43 they both accounted for similar shares of total exports percent of total growth, the introduction of old products between 2005 and 2015 (about 40 percent). to new regions accounted for another 36 percent, while the contribution of new products was modest between The performance of mineral exports was closely linked 2005 and 2015 (21 percent). to the price of gold in international markets. Because gold represented between 90 and 95 percent of mineral Exports to India increased significantly over the last de- exports over the last decade, the growth of sectoral cade, replacing Europe as the most important destina- exports closely followed the price developments of this tion for Tanzania’s exports over the last decade. Exports product: when gold prices increased sharply between to India grew from US$78 million to US$1,149 million be- 2005 and 2012, exports of gold recorded their best tween 2005 and 2015, with export growth accelerating performance, and when the price declined after 2012, in the second part of the decade (23.7 percent annual exports declined as well (although at a less steep pace growth between 2005 and 2010 compared to 38.4 per- thanks to increased production). Besides gold, Tanzania cent between 2010 and 2015). Exports to Europe grew also exported some industrial ores (mainly copper and manganese), limestone, diamonds, and other gems FIGURE 3.5: Gold exports and price, 2005–15 during the last decade. Exports of tanzanite fluctu- 2,500 1,800 ated between US$10 million and US$35 million during the decade. 1,600 2,000 1,400 The majority of the growth recorded by agricultural 1,200 US$ per troy ounce exports was due to increasing imports from India 1,500 US$, million 1,000 and Asian countries (mainly China and Japan). The 800 Association of South East Asian Nations+3 countries (26 1,000 600 percent) and India (28 percent) accounted for more than half of the growth of agricultural exports between 2005 500 400 and 2015. Although regional trade increased its relative 200 importance in agricultural exports, it only accounted 0 0 for 16 percent of agricultural export growth during this 2005 2007 2009 2011 2013 2015 period (6 percent to the EAC, 7 percent to the SADC, Gold exports (US$, million) Gold price (US$ per troy ounce) and 3 percent to the rest of Africa). In terms of overall Source: Derived from United Nations Comtrade. CHAPTER 3: Trade Policy and Trade Performance | 19 FIGURE 3.6: Growth Decomposition in Agricultural Exports, at lower rates during this period (16.3 percent between 2005–15 2005 and 2010 and -8.4 percent between 2010 and 2015), which translated in a loss of relative export shares. Re- United States India 1% 28% gional exports also decelerated in the second part of this period, with exports to the EAC growing at only 3 percent between 2010 and 2015 after growing at 34.8 percent in the previous five-year period, while exports Rest of Africa 3% to the SADC countries grew more slowly in the latter pe- riod (10.7 percent and 8 percent, respectively) (table 3.3). EAC 6% Tanzania has a well-diversified basket of agricultural SADC exports, including cereals, seeds, fruits, vegetables and 7% ASEAN +3 fish. Table 3.4 shows Tanzania’s top 20 exported prod- 26% ucts at the HS 6-digit level and the main destinations for those products in 2015. Although the export basket seems well diversified in terms of agricultural products, manufacturing products are largely missing from this table. In terms of destinations, it is worth highlighting that no regional group or country dominates the impor- Europe Rest of the world 11% 18% tation of more than three or four of these products which reflects in good diversification of destination mar- Source: Derived from COMTRADE data on WITS Note: ASEAN+3 = Association of South East Asian Nations plus China, Japan, and the Korea, Rep. kets as well. TABLE 3.3: Tanzanian Exports, by Main Destination, US$ million, 2005–15 Value (US$ million) Total exports (%) Annual growth 2005 2010 2015 2005 2010 2015 2005–10 2010–15 India 78 226 1,149 5.1 5.8 21.6 23.7 38.4 EAC 112 494 574 7.3 12.7 10.8 34.6 3.0 Kenya 80 306 443 5.2 7.8 8.3 30.6 7.7 Uganda 21 48 50 1.4 1.2 0.9 18.3 0.8 Burundi 8 53 39 0.5 1.4 0.7 46.9 -5.7 Rwanda 3 87 41 0.2 2.2 0.8 94.3 -14.0 SADC 317 528 777 20.6 13.5 14.6 10.7 8.0 South Africa 292 431 675 19.0 11.0 12.7 8.1 9.4 Congo, Dem. Rep. 13 141 198 0.9 3.6 3.7 60.2 7.1 Zambia 9 55 44 0.6 1.4 0.8 44.5 -4.4 Mozambique 7 18 19 0.5 0.5 0.4 20.5 0.6 Europe 568 1,209 778 36.9 31.0 14.6 16.3 -8.4 Germany 78 139 226 5.1 3.6 4.2 12.3 10.2 Switzerland 146 710 154 9.5 18.2 2.9 37.2 -26.3 Belgium 37 95 149 2.4 2.4 2.8 20.9 9.4 ASEAN+3 241 985 967 15.7 25.2 18.2 32.5 -0.4 China 99 657 562 6.4 16.8 10.6 46.1 -3.0 Japan 72 216 230 4.7 5.5 4.3 24.5 1.3 Vietnam 3 43 70 0.2 1.1 1.3 65.8 10.6 Rest of Africa 34 258 399 2.2 6.6 7.5 49.9 9.1 United States 18 48 51 1.2 1.2 1.0 21.9 1.1 Rest of the world 169 158 625 11.0 4.0 11.7 -1.3 31.7 Source: Derived from COMTRADE data on WITS. Notes: ASEAN+3 = Association of South East Asian Nations plus China, Japan, and the Republic of Korea; EAC = East African Community; SADC = Southern Africa Development Community. TANZANIA DTIS 2017 | 20 BOX 3.2: Intra-Regional EAC Trade Mirror Trade Data In principle, transit trade through countries should not be included in Uganda. Goods destined for neighboring economies outside the EAC, the imports and exports data, and exports from Country A to Country including the Democratic Republic of Congo also transit through Tan- B should be equivalent to imports to Country B from Country A. In zania and Rwanda. practice, it is reasonable to expect some differences in cases where the borders operate completely independent and also for delays In 2013, approximately US$555 million were recorded as exports which may result in the same products being classified into different by Kenya (US$234 million), Tanzania (US262 million), and Uganda time periods by the two countries. Further exports are usually valued (US$142 million) to other EAC economies that were not matched by as free on board (FOB) which reflects the ex-factory sale price, while the corresponding import data. imports are valued with the costs of the carriage, insurance, and freight (FOB). In the case of the East African Community (EAC), which Exports from Tanzania to Kenya and Uganda are much higher than operates a Common External Tariff, each country’s Revenue Authority the corresponding imports, by US$93 million (41 percent difference) records imports on intra-EAC trade as they are responsible for levy- and US$66.5 million and US$45.3 million, respectively. This may ing value-added tax (VAT) on most products. The Revenue Authority reflect exports that should have been classified as in transit to a third also has a responsibility to record the value of exports, however, country via Mombasa (or through Uganda to Rwanda or the Demo- except for a very small number of products (hides and skins, cashew cratic Republic of Congo), or perhaps products that were informally nuts) there are no export taxes. Given the mandates of the respective exported from Tanzania to avoid export permits (required for all revenue authorities there is an incentive to accurately record imports. agricultural products), or were destined for the domestic Kenyan or Ugandan markets, and importers declared lower values to reduce Using import data reported by each of the EAC countries and then their VAT payments. comparing the mirror data (exports from the originating country) highlights large disparities. Kenya, Tanzania, and Uganda all record Tanzania sourced 3.2 percent of its total imports in 2013 from the significantly larger exports to EAC countries than is reflected in the EAC, and exported 9.6 percent of total exports. While Kenya sourced mirror import data. The ports of Mombasa and Dar es Salaam serve only 2 percent of its imports from the EAC, intra-regional exports as major entry points for the hinterland economies of Rwanda and accounted for 22.9 percent of the total. Uganda. Goods destined for Rwanda from Kenya also transit through Source: Derived from United Nations Comtrade data. TABLE 3.4: Tanzania’s Top 20 Exported Products, 2015 HS-6 code Product description US$ million Africa ASEAN EAC Europe India SADC ROW 710812 Gold in unwrought forms non-monetary 1,431 – 0.0 0.0 9.7 37.7 46.0 6.5 261690 Precious metal ores and concentrate 469 – 76.0 – 23.0 1.0 0.0 0.0 230230 Bran, sharps, and other residues of wheat 263 – 2.3 0.0 – – – 97.7 80130 Cashew nuts, fresh or dried 251 – 17.4 0.0 0.2 79.3 0.1 3.0 151550 Sesame oil and fractions 219 – 100.0 – – 0.0 – 0.0 240120 Tobacco, partly or wholly stemmed/s 213 1.0 8.2 – 85.9 – 0.4 4.6 Twine, cordage, ropes, cables of sisal or 560729 172 – 0.7 98.2 0.6 0.0 0.1 0.4 other textile fibres of the genus agave 71390 Dried leguminous vegetables, shelled 171 – 2.0 – 1.0 92.3 0.2 4.4 90111 Coffee, not roasted or decaffeinate 155 1.6 32.9 0.1 43.3 – 2.5 19.6 120740 Sesamum seeds 130 – 99.9 – – 0.1 – 0.0 271000 Petroleum oils, etc., (excluding crude) 101 0.3 0.0 11.2 0.0 – 3.8 84.8 30490 Frozen fish meat (excluding fillets) 96 0.0 21.6 2.1 52.9 – 0.0 23.3 30232 Fresh or chilled yellowfin tunas 66 – – – – 100.0 – 0.0 720410 Waste and scrap, cast iron 63 – 0.3 0.0 1.8 97.7 – 0.1 240220 Cigarettes containing tobacco 47 – – 0.0 87.1 – 12.9 0.0 90240 Black tea (fermented) and partly fermented 45 0.1 1.0 43.2 25.5 0.2 5.3 24.7 530310 Jute, etc. (excluding flax, hemp, and ramie) 40 8.1 28.2 40.2 5.0 3.3 0.1 15.1 30420 Frozen fish fillets 40 – 18.4 1.3 56.2 – 0.0 24.2 71310 Dried peas, shelled 37 – – 0.0 – 97.6 0.5 1.9 Glass; (not ampoules), used for the 701090 36 7.6 – 50.6 7.5 0.0 34.2 0.0 conveyance or packing of goods Source:  Derived from United Nations Comtrade database. Notes:  ASEAN = Association of South East Asian Nations; EAC = East African Community; HS = Harmonized System; SADC = Southern Africa Development Community; ROW = rest of the world. CHAPTER 3: Trade Policy and Trade Performance | 21 Trade in Services reflecting increased mining and extractives, manufac- turing, and agricultural products (table 3.5). However, Tanzania is missing out on the global services in comparison to countries such as Kenya, Botswana, revolution. Tanzania, along with Kenya and Uganda, is Mauritius, Namibia, Seychelles, and South Africa, active in exporting services relative to manufactured Tanzania’s per capita services exports is low. Similarly, exports. Comparing the scale of services relative goods exported per capita appear to be very low when to the export of goods, Tanzania is lagging behind Tanzania is compared with most of the SADC countries, countries such as Mauritius, which seems to have taken except Madagascar and Malawi. advantage of the global services revolution and export services such as communications, international call Tanzania’s compound annual growth rate in goods and centers, and finance. In Mauritius, the average ratio of services exports increased from 15 percent in 2005 services exports relative to goods exports increased by to 18 percent in 2013 (figure 3.7). Among the regional 66 percent during fiscal 2006 to 2013 period. Table 3.5 comparator countries, Tanzania’s export growth in the shows the scale of services exports relative to goods goods sector, although not exemplary, is not amongst exports for countries in the EAC and SADC groups. It the lowest. Over the same period, since the 2005 DTIS, suggests that the scale of services exports relative to Tanzania’s exports in the goods sector grew by an aver- goods exports for Tanzania declined over the last few age of 15 percent per year, while its imports grew by an years since the earlier DTIS. This contrasts to most EAC average of 18 percent per year. Comparatively, exports and a few SADC countries in the region that are taking of Rwanda, Zambia, and the Democratic Republic of advantage of innovations in services technology to Congo have grown by an average of over 20 percent per integrate into the global and regional economies. year between 2005 and 2013. Tanzania’s value of per capita services exports has Tanzania is a net exporter of services and this has been nearly doubled since 2006, while per capita goods growing over time, largely driven by the growth of the exports have increased two and half times, largely tourism sector. TABLE 3.5: Tanzania’s Goods and Services Exports to the EAC and SADC, US$ millions/thousands per capita Services and goods exports Services exports per capita Goods exports per capita FY2006 FY2013 FY2006 FY2013 FY2006 FY2013 Tanzania 77 54 35 62 46 115 EAC Burundi 58 107 4 11 8 11 Kenya 62 79 59 113 96 143 Rwanda 124 72 18 40 14 56 Uganda 49 78 18 60 38 76 SADC Angola 3 2 49 49 1,659 3,297 Botswana 18 6 425 200 2,377 3,383 Lesotho 5 7 19 32 350 441 Madagascar 65 76 32 57 48 76 Mozambique 18 27 17 43 97 156 Mauritius 74 124 1,336 2,711 1,814 2,194 Malawi 11 9 5 7 48 81 Namibia 20 22 230 439 1,155 1,968 Swaziland 15 13 216 191 1,423 1,527 Seychelles 104 84 4,777 5,160 4,589 6,141 South Africa 20 17 261 327 1,283 1,868 Congo, Dem. Rep. 15 3 7 4 47 147 Zambia 9 5 22 37 265 699 Source:  Derived from World Bank World Development Indicators. Notes:  EAC = East African Community; SADC = Southern African Development Community. TANZANIA DTIS 2017 | 22 FIGURE 3.7: Compound Annual Growth Rate in Services Exports, 2005–13 a. Exports b. Imports Tanzania Tanzania EAC EAC Rwanda Rwanda Uganda Kenya Kenya Burundi Burundi Uganda SADC SADC Zambia Zambia Congo, Dem. Rep. Mozambique Angola Congo, Dem. Rep. Malawi Angola Mozambique Namibia Madagascar Botswana Namibia Malawi South Africa Madagascar Botswana South Africa Seychelles Mauritius Mauritius Seychelles Lesotho Lesotho Swaziland Swaziland 0 5 10 15 20 25 -5 0 5 10 15 20 25 Percent Percent Source: Derived from World Bank World Development Indicators. Notes: Kenya and Malawi’s compound annual growth rate is calculated for the period between 2005 and 2012 due to nonavailability of data for 2013; EAC = East African Community; SADC = Southern African Development Community. Characteristics of Exporters in Tanzania3 margin is particularly strong for manufacturing exports. This is primarily agricultural inputs (fertilizer) and Export growth can be differentiated by the extensive agribusiness selling to regional markets including the margin, which refers to growth from new products or EAC, Eastern Democratic Republic of Congo, and SADC. new destinations (or both), and the intensive margin, Approximately 70 percent of aggregate growth in manu- which refers to increases of existing exports to existing facturing exports were destined for regional markets in destinations. Brenton and Newfarmer (2007) applied the EAC and SADC. Over the period 2005–10, Asian mar- this growth decomposition to global bilateral trade flow kets accounted for 30.1 percent of the overall growth data for the period between 1995 and 2004. For low- in manufacturing exports. The expansion of exports income economies in Sub-Saharan Africa, the extensive to regional and Asian economies accounted for two- and intensive margins accounted for 57 and 43 percent thirds of total exports growth during the same period. of the growth, respectively. This implies that there is Reforms in agricultural marketing stimulated larger significant scope for further expansion through product increases in the exports of tobacco, coffee, and cashew and market diversification. to existing markets. Table 3.6 shows Tanzania’s leading products’ destination, by growth margin. Almost two-thirds of Tanzania’s export growth in the period 2000–10 came from the extensive margin. This Exports from Tanzania are destined for relatively few growth was almost equally split between exporting new countries and consist of a relatively small number of products to existing markets and existing products to products. The index of export market penetration is new markets. There were virtually no new products defined as the ratio of the actual number of bilateral exported to new markets. The growth in the extensive trade flows to potential bilateral trade flows. In 2014, CHAPTER 3: Trade Policy and Trade Performance | 23 Tanzania’s exports to its top five partners (India, South TABLE 3.6: Leading Products: Destination, by Growth Margin Africa, China, Kenya, and Democratic Republic of Congo) Product category Destination accounted for almost 60 percent of total exports by Existing products to current destination value. Out of exports to 155 countries in 2014, only 77 Gold Switzerland, South Africa countries recorded values of US$1 million or larger. Tobacco Germany, Belgium, Russian In 2005, Tanzania exported to 135 countries, with only Federation, Poland 54 countries having values larger than US$1 million. Petroleum South Africa Cotton Indonesia, Thailand Exports of minerals and precious metals and vegetables Textile Kenya are destined for a small number of countries, with 10 Sesame seeds Japan countries accounting for 98 and 79 percent of total Coffee Japan, United States, exports, respectively. Russian Federation Cashew India Exporters are more likely to be larger, longer Wheat flour Congo, Dem. Rep. established, and foreign owned. In 2006, the World Fish United Arab Emirates Bank’s Enterprise Surveys reported that regular New products to current destination exporters were larger than the average company, had Natural gas Kenya Fertilizer Rwanda been established longer, and had a higher probability of Coffee/Tea-makers Kenya being either fully or partially foreign owned. Boring Machines Congo, Dem. Rep. Diammonium phosphate Kenya, Congo, Dem. Rep. Trade Costs Urea Kenya, Rwanda, Congo, Dem. Rep. Trade costs may be defined broadly as the difference Paper Kenya, India between the producers’ export price from one country Sesame Oil China, Japan and the price to consumers in the country of destination. New destination of existing products This gap between export and import prices may be Tobacco Morocco explained by a wide range of factors, including transport Cotton Morocco Textiles Liberia costs, border-related barriers (tariffs, charges, and Source:  World Bank 2013. regulatory compliance costs), retail and wholesale distribution costs, currency barriers, language differences, information costs, and security barriers. In The database shows that trade costs, are much higher their comprehensive review of the literature on trade for developing countries that for developed economies. costs, Anderson and Van Wincoop (2004) reported a Secondly many developing economies have reduced figure of 170 percent ad valorem for trade costs for a their trade costs although at a slower rate than for developed country. Extensive further work over the the OECD economies. The rapidly growing economies past decade using the gravity model of trade sought to of East Asia and the Pacific registered much larger quantify the relative importance of the different factors declines in trade costs than economies in Africa. When comprising trade costs. Arvis and others (2013) used trade costs were broken down into the different factors a more ‘top down’ approach4 to identify trade costs by trade facilitation and logistics and ‘behind the border’ focusing on actual production and trade data between regulatory measures were found to be particularly countries. The World Bank collected information on significant. Indeed, the costs of maritime transport trade flows and production data from 178 countries and connectivity and logistics performance taken together developed a database of trade costs. Data is available is larger than geographical distance in determining for Tanzania and its major trading partners. This data trade costs. The significant of regulatory measures disaggregates trade costs into two broad sectors, highlights the importance of improving regulatory effi- agriculture and manufacturing, as well as providing ciency for promoting international competitiveness and the aggregate costs.5 The trade costs are measured export diversification. in ad valorem equivalents as the price raising effect of borders relative to domestic production between Data on trade costs is available for Tanzania’s bilateral two countries.6 trade with 83 countries, accounting for more than 95 TANZANIA DTIS 2017 | 24 percent of total exports over the period 2005–13. During that there has been limited change over the past the period 2005–13, Tanzania’s average bilateral trade decade. Bilateral trade costs with India have declined 58 costs (shown in figure 3.8) registered a modest decline percent through the period 2005–13, and India’s share of from approximately 310 to 275 percent. Tanzania’s Tanzania’s trade increased significantly. 10-largest export partners in 2013, accounting for almost three-quarters of total exports, had, on average, Tanzania’s trade costs with neighboring countries broadly constant trade costs at 150 percent. recorded the largest reductions over the period 2005–13 (figure 3.10). Bilateral trade costs with Rwanda When bilateral trade costs are shown (figure 3.9) for declined by almost 150 percent and by 90 percent individual trading partners, both within the region and with Mozambique. Although trade costs with Burundi extra-regionally, there are wide variations. Further, remained high they declined by almost 50 percent. several regional countries, including the Democratic These are positive results and highlight the potential Republic of Congo and Burundi, record higher trade opportunities for significantly increasing regional trade, costs than external trade partners on other continents. albeit from a relatively low base, by removing bottle- South Africa and Kenya have some of the lowest bilat- necks that previously crowded out bilateral trade. eral trade costs with Tanzania, although it is noticeable Breaking out the trade costs between the agricultural FIGURE 3.8: Progress on Reducing Trade Costs, 2005–13 sector (figure 3.11) and manufacturing (figure 3.12) highlights the ‘thickness’ of borders for agricultural 350 trade within East Africa. With the geographical factors 300 remaining constant since these costs are largely deter- mined by exogenous factors such as the geographical 250 distance, language, membership to the EAC or SADC. Percent The difference in trade costs results from endogenous 200 trade costs, including, tariffs, nontariff measures, and logistics performance. While bilateral manufacturing 150 trade costs for Rwanda and Burundi declined signifi- 100 cantly to be closer to Uganda’s trade costs, agricultural 2005 2006 2007 2008 2009 2010 2011 2012 2013 trade costs within the EAC were more variable and were All countries (average) 10-largest export partners almost twice as high with Kenya, Uganda, and Burundi Source: Derived from World Bank Trade Costs database. all recording above 150 percent in 2013. FIGURE 3.9: Bilateral Trade Costs with Major Trading Partners, 2005–13 Congo, Dem. Rep. Germany China Switzerland India South Africa Kenya 300 250 200 Percent 150 100 50 0 2005 2013 '05 '13 '05 '13 '05 '13 '05 '13 '05 '13 '05 '13 Source: Derived from World Bank Trade Costs Database. CHAPTER 3: Trade Policy and Trade Performance | 25 FIGURE 3.10: Change in Bilateral Trade Costs, 2005–13 Kenya Uganda Zambia Burundi Belgium India Namibia Mozambique Rwanda -160 -140 -120 -100 -80 -60 -40 -20 0 20 Percent Source: Derived from World Bank Trade Costs database. FIGURE 3.11: Bilateral Trade Costs, Agriculture, 2005–13 FIGURE 3.12: Bilateral Trade Costs, Manufacturing, 2005–13 450 350 400 300 350 250 300 250 200 Percent Percent 200 150 150 100 100 50 50 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 South Africa Uganda Burundi South Africa Uganda Burundi Kenya Rwanda Kenya Rwanda Source: Derived from World Bank Trade Costs Database. Source: Derived from World Bank Trade Costs Database. Recommendations bias of the existing CET. Reducing trade taxation, while Tanzania (and other EAC economies) face serious rev- Reduce the very high tariff peaks. The existing sensitive enue challenges and budget deficits, requires coordinat- sectors with tariff peaks above the EAC CET maximum ing any external tariff reform with broader tax reform. tariff of 25 percent range from 35–100 percent should This would also need to be coordinated with all the be phased out. The existing tariff policies result in an EAC partners. incentive structure that discourages expanding produc- tion for exports, encourages production for the domestic Phase out export taxation. Export taxes and export market, and results in higher prices for basic foodstuffs, bans are aimed at encouraging additional domes- which reduces living standards and has a disproportion- tic value added. In all cases, export taxes have the ate negative impact on the poorest groups. unintended result of ensuring the domestic supplier receives a lower price for their products. Promoting Reduce the maximum CET to 15 percent. Reducing links and additional value added would be better served the number of EAC CET tariff bands to two, zero, and through reducing trade costs. 15 percent would considerably reduce the anti-export TANZANIA DTIS 2017 | 26 Notes References 1.  Hifadhi (Dar es Salaam), Millennium Business Park Anderson, James and Eric van Wincoop. 2004. “Trade EPZ (Dar es Salaam), Kisongo (Arusha), Kamal Industrial Costs.” Journal of Economic Literature 42 (3): 691–751. Park SEZ (Bagamoyo), Global Industrial Park SEZ (Dar BOT (Bank of Tanzania). 2016. Bank of Tanzania Annual es Salaam), and Benjamin William Mkapa SEZ (Dar es Report 2014/15 . Dar es Salaam: BOT. Salaam). Cunningham, Victoria Frances Kernot, Mahjabeen Haji, 2.  The trade data was downloaded from the World N., andJustina Kajange. 2015. Tanzania Economic Integrated Trade Solutions website http://wits.world- Update: Why Should Tanzanians Pay Taxes? The bank.org/. Unavoidable need to Finance Economic Development. 3.  This section is based on Yoshino and others (2013). Washington, D.C.: World Bank. 4.  Following the inverse form of the gravity model Dinh, Hinh T., Celestin Monga, Jacques Morisset, as developed by Novy, Dennis (2013) Gravity redux: Josaphat Kweka, Fahrettin Yagci, and Yutaka Yoshino. measuring international trade costs with panel data, 2013. Light Manufacturing in Tanzania: A Reform Economic Inquiry, Vol. 51 (1). Agenda for Job Creation and Prosperity. Washington, 5.  The World Bank-United Nations Economic and D.C.: World Bank. Social Commission for Asia and the Pacific Trade Cost Mousley, Peter, Clive Harris, and Victoria Rigby- database can be accessed at http://databank.worldbank. Delmon. 2014. Building Integrated Markets within org/data/reports.aspx?source=escap-world-bank-inter- the East African Community: EAC Opportunities national-trade-costs. in Public-Private Partnership Approaches to the 6.  There are challenges with the accuracy of the Region’s Infrastructure Needs. A World Bank study. underlying data, namely the extent to which net exports Washington, D.C.: World Bank. take account of reexports and the data on the value of Novy, Dennis. 2013. “Gravity Redux: Measuring products produced and sold domestically. Furthermore, International Trade Costs with Panel Data.” Economic it is assumed that the intra-sectoral elasticity of sub- Inquiry 51 (1): 101–121. stitution remains constant across the economy, coun- Yoshino, Yutaka, Olivier Cadot, Francis Ratsimbazafy, tries, and over time. Given the data challenges and the and Julie Regolo. 2013. Uncovering Drivers for necessary simplifications required to operationalize the Growth and Diversification of Tanzania’s Exports and model, the data must be considered illustrative rather Exporters. Washington, D.C.: World Bank. than representing precise measurements. 4 TANZANIA DTIS 2017 | 28 Border Management, Trade Logistics, and Transport Border management and trade logistics are key deter- minants of trade costs. For Tanzania, trade facilitation is critically important at the national, regional, and global levels, since the port of Dar es Salaam is one of the key entry points for Tanzania and Central, Eastern, and Southern Africa. Thus, strategies to improve trade facilitation and logistics impact on national, regional, and international competitiveness. Tanzania straddles both Eastern and Southern Africa and has a long coastline on the Indian Ocean with access to major shipping lanes. It shares borders with seven countries, five of which are landlocked or quasi-landlocked with borders along two lakes (Victoria and Tanganyika). Tanzania—with the strategically located port of Dar es Salaam providing access to the broader Central-Eastern and Southern Africa region—has an opportunity to benefit from the growing volumes of trade from China and the rest of the Asia region. This chapter focuses on both the trade facilitation and logistics processes, including transport. The chapter seeks to highlight key issues related to the border clear- ance process (customs and other border agencies), port- related and logistics industry issues, and transport. The “Border management and trade chapter focuses on identifying priority actions, including logistics are key determinants of simplifying documentation, inspections, and procedures and reducing clearance time for imports and exports. trade costs. For Tanzania, trade facilitation is critically important Tanzania has implemented a range of trade facilitation at the national, regional, and and logistics measures since the earlier Diagnostic Trade Integration Study (DTIS) 2005 for the country, global levels, since the port of Dar and has achieved improvements in its trade facilitation es Salaam is one of the key entry and logistics environment. Effectively implementing the government’s commitment to improving the business- points for Tanzania and Central, enabling environment through harmonizing and sim- Eastern, and Southern Africa.” plifying the legislative, regulatory, and administrative CHAPTER 4: Border Management, Trade Logistics, and Transport | 29 provisions regarding importing and exporting promises highest performer. The performance in all areas of the to deliver further significant reductions in trade costs. LPI measures is slightly higher than other countries in the East Africa region, with performance in timeliness, The 2013 World Trade Organization (WTO) Trade international shipments, customs, infrastructure, and Facilitation Agreement (TFA) presents an opportunity tracking and tracing being the lowest, while logistics for Tanzania to accelerate trade facilitation reforms. quality and competence is an area where improvement The TFA contains provisions for expediting the move- is slightly more visible (figure 4.1, panel b). ment, release, and clearance of goods traveling across borders through effective cooperation between customs The LPI performance indicators show that organizing and other appropriate authorities on trade facilita- supply chains in Tanzania carries a higher cost and tion and customs compliance issues. It also sets out is more time consuming relative to most neighboring measures to promote cooperation among customs and countries. Logistics is about managing supply chain, border authorities on customs compliance issues. As which efficiency and reliability are determined by how the TFA moves towards ratification1 and implementation, well transport infrastructure, border agencies, and countries around the world will be required to begin transport regulators, as well as services providers, are implementing the technical requirements of the agree- interacting in a predictable and efficient manner. In this ment; speedup customs procedures; make trade easier, regard, Tanzania’s LPI score suggests that it needs to faster, and cheaper; provide clarity, efficiency, and trans- close the gap in the quality of logistics and trade facilita- parency; reduce bureaucracy and corruption; and use tion with neighboring countries if it wishes to maximize technological advances. the opportunities from trade openness and eliminate the binding constraints for trade and investment in Effectively implementing the TFA will deliver trade facili- the country. tation benefits to the private sector through streamlin- ing border agency cooperation. The TFA provides for The 2016 Doing Business (DB) survey ranked Tanzania protecting legitimate public objectives in areas such as 180 (out of 189 countries) for ease of trading across revenue collection, community protection, and national borders, due to long delays and extensive documenta- security. This can only be achieved by ensuring that all tion requirements. Tanzania’s performance on the DB’s the relevant government agencies involved in facilitat- trading across borders indicators therefore remains ing trade are actively engaged in the implementation low, at about 80 percentage points away from the fron- process, and that there is wide consultation with other tier (constructed from the best performances across all stakeholders. economies and across time).3 The latest measurement is almost a 40-percent decrease since it was covered in 2013 (figure 4.2, panel a). Streamlining documenta- Tanzania’s Trade Logistics and Trading Across tion for exporting and importing may further encourage Borders Performance trade with Tanzania. Notwithstanding recent progress, Tanzania’s customs Growing the private sector requires a more supportive and logistics performance metrics indicate the impor- regulatory business environment. While Tanzania ranks tance of continuing with customs modernization, regula- relatively well compared to most other countries in the tory streamlining, and strengthening government and East Africa region, in DB 2016, its investment climate private sector capacity. The World Bank’s Logistics has slipped in some areas over recent years and there Performance Index (LPI) ranks countries on a range of is substantial room for improvement. Figure 4.3 shows trade facilitation measures based on the perception of that Tanzania’s overall DB ranking has very slightly business users.2 Figure 4.1, panel a, shows that Tanzania improved from 140 in 2015 to 139 (out of 189 countries) consistently performs lower than its neighboring coun- in 2016, and Tanzania’s “distance to frontier” scores on tries and trading partners, at about 62 percent as a per- the overall DB have deteriorated from 44 in 2013 to 48 centage of the highest performer in 2016, Germany. This in 2016, while the scores for other countries in the East rating has increased since the first edition of the LPI in Africa region registered a modest improvement over the 2007, when performance was at about 34 percent of the same period. TANZANIA DTIS 2017 | 30 FIGURE 4.1: Logistics Performance Index, Tanzania and Selected countries 2007–16 a. Percentage of the highest performer, LPI trend, 2007–16 Germany South Africa Kenya Botswana Uganda Tanzania Rwanda Mozambique Burundi Zambia Ethiopia Congo, Dem. Rep. Angola Zimbabwe Somalia Syrian Arab Republic 0 10 20 30 40 50 60 70 80 90 100 Percent 2007 2010 2012 2014 2016 b. Performance on LPI indicators rank, 2016 International Logistics quality Tracking and Customs Infrastructure shipments and competence tracing Timeliness Germany 1 South Africa Kenya 20 Botswana Uganda 40 Rwanda 60 Tanzania Ethiopia Rank 80 Mozambique Zambia 100 Congo, Dem, Rep, Burundi 120 Zimbabwe Angola 140 Somalia Syrian Arab Republic 160 Source: Derived from World Bank Logistics Performance Index. CHAPTER 4: Border Management, Trade Logistics, and Transport | 31 FIGURE 4.2: Doing Business Trading Across Borders Indicator, Tanzania and Selected Countries a. Distance to frontier trend, 2013–16 Germany Botswana Zimbabwe Malawi Uganda Mozambique South Africa Kenya Zambia Burundi Rwanda Ethiopia Syrian Arab Republic Tanzania Angola Congo, Dem. Rep. 0 10 20 30 40 50 60 70 80 90 100 Percent 2013 2014 2015 2016 b. Performance rank, 2016 1 35 Germany 51 Botswana 100 Rank Zimbabwe 123 130 Malawi 128 South Uganda 131 Africa Kenya 129 Mozambique 152 154 156 Zambia Burundi 173 Rwanda 166 Syrian Ethiopia Arab 187 Republic 180 181 Congo, Tanzania Angola Dem. Rep. 189 Source: Derived from World Bank Logistics Performance Index. TANZANIA DTIS 2017 | 32 FIGURE 4.3: Doing Business Overall Indicator, Tanzania and Selected Countries a. Distance to frontier trend, 2013–16 Germany Rwanda Botswana South Africa Zambia Kenya Uganda Mozambique Tanzania Malawi Ethiopia Burundi Zimbabwe Syrian Arab Republic Angola Congo, Dem. Rep. 30 35 40 45 50 55 60 65 70 75 80 Percent 2013 2014 2015 2016 b. Performance rank, 2016 1 15 Germany 55 Rwanda 69 South Africa 72 Botswana 91 Zambia Rank 128 129 Mozambique Kenya 135 Uganda 140 Tanzania 144 Malawi 148 Ethiopia 151 153 Burundi Zimbabwe 173 187 Syrian Arab Republic Congo, 183 Dem. Angola Rep. 189 Source: Derived from World Bank Logistics Performance Index. CHAPTER 4: Border Management, Trade Logistics, and Transport | 33 FIGURE 4.4: Trading Across Borders, Time to Trade Subindicators, 2016 a. Time to export in Tanzania b. Time to import in Tanzania Documentary compliance 4 Documentary compliance 10 Border compliance 4 Border compliance 17 Domestic transport 0.2 Domestic transport 0.2 0 6 12 18 24 30 0 6 12 18 24 30 Days Days Source: Derived from World Bank Doing Business data. Tanzania’s border procedures continue to rely on physi- Reducing trade costs will improve the import and export cal inspection and unnecessarily bureaucratic proce- environment and promote growth. Reviewing, stream- dures. Notwithstanding recent improvements relating to lining, and simplifying regulations and procedures for the new customs clearance software (Tanzania Customs trade facilitation, would be an important short-term Integrated System [TANCIS]), the length and complex- action needed to meet the increased demand for timeli- ity of procedures continue to impose additional costs ness in export and import, and improve the overall busi- on both importers and exporters, which slow down ness environment in Tanzania. and discourages formal transactions while encourag- ing parallel trade. The increased use of information and This chapter identifies trade facilitation initiatives that communication technology (ICT) needs to be linked to would reduce trade costs. The chapter reviews the reviewing procedures and regulations that enable trad- existing level of trade facilitation along with noting ongo- ers to benefit from more reliable and faster clearance ing programs with the aim of identifying issues where times while ensuring customs integrity. Tanzania could implement changes that would reduce trade costs. Lessons from other countries highlight Unnecessary and duplicative customs procedures and the importance of adopting a coordinated approach the Tanzania Ports Authority’s (TPA) inefficient port to customs modernization as isolated initiatives are operations crowd out trade and divert trade to alterna- rarely successful. tive ports. In today’s globalized world, making trade between economies easier is increasingly important for Trade Facilitation Agreements business. Excessive document requirements, burden- some customs procedures, inefficient port operations, Tanzania is committed to implementing the TFA through and inadequate infrastructure, all lead to extra costs its active membership in the East African Community and delays for exporters and importers, all stifle trade (EAC). Tanzania is an active member of the EAC and the potential. Simplified, transparent trade procedures are Southern African Development Community (SADC) Free therefore a key component of good trade policy and a Trade Area, and has been a member of the WTO since vital measure for economic growth. Outdated bureau- 1964. Customs policies and administrative regulations cracies suppress trade and entrepreneurship, discour- are driven by the EAC Customs Management Act of 2004 age investment, and encourage corruption and small and the EAC Customs Management Regulations of 2006, and medium-size enterprises are particularly vulnerable Despite assenting to the EAC Customs legislation, many to these difficulties. There are also quite significant dif- of the measures have not been implemented.4 Tanzania ferences in productivity between the TPA port opera- has not acceded to the Revised Kyoto Convention; how- tions and the Tanzania International Container Terminal ever, the core principles of the convention are embodied Services (TICTS) concession. The berths managed by in the EAC legislation and regulations. the TPA handles 420 twenty-foot equivalent units (TEUs) per ship day at berth compared to 730 TEUs per ship Tanzania continues to face many challenges to reduce day for the berths managed by the TICTS concession. trade costs as outlined in the recent Trade Facilitation TANZANIA DTIS 2017 | 34 Assessment (validated in March 2015). Identified pri- orities included the importance of ensuring all trade- BOX 4.1: WTO Trade Facilitation related information be readily available, installing an automated cargo-tracking system, establishing The WTO Trade Facilitation includes the following: procedures and alert systems for the “trade enquiry” • Requirements for the publication of laws, regulations, and points, developing the legal framework for the proposed procedures, including Internet publication One-Stop Border Posts, harmonizing procedures and • Provision for advance rulings training for implementing the National Electronic Single • Disciplines on fees and charges and on penalties • Prearrival processing of goods Window (NESW), funding the implementation of the • Use of electronic payment National Trade Facilitation Committee, and, at the port, • Guarantees to allow rapid release of goods implementing a Port Community System. In 2012, the • Use of “authorized operator” schemes WTO’s Trade Policy Review Mechanism highlighted risk • Procedures for expediting shipments • Faster release of perishable goods management as a serious constraint, noting that the • Reduced documents and formalities with common Tanzania Revenue Authority (TRA) subjected 20 per- customs standards cent of imports to scanning and classified 40 percent of • Promotion of the use of a Single Window imports as high risk (WTO 2012). Concerns over revenue • Uniformity in border procedures loss have resulted in the TRA increasing the rate of • Temporary admission of goods • Simplified transit procedures physical inspections. • Provisions for Customs cooperation and coordination Source: Extracted from the WTO Agreement on Trade Facilitation. The 2014 TFA needs assessment was never published and now requires updating. A TFA needs assessment was carried out at the national level and a draft report was prepared, but the report is yet to be published.5 least-developed countries. Section II of the TFA provides This was undertaken in early 2014, when the TRA was those countries with special and differential treatment using ASYCUDA++ (Automated SYstem for CUstoms (S&DT) with respect to implementing the provisions DAta) as their automated declaration processing sys- and the treatment that other members accord them. tem. At the end of 2014, the TRA transitioned to a new A key aspect of the S&DT mechanism is the possibility bespoke customs clearance software: TANCIS. Given for developing and least-developed countries to the importance of declaration processing and cargo categorize the substantive obligations into three clearance to trade facilitation, it would be useful to categories.6 Each category provides different levels of update the TFA needs assessment. This might include a flexibility for the preconditions for implementation and new Time Release Study (TRS), as well as interviewing the implementation period. Tanzania notified the TFA key stakeholders. category A articles in May 2015.7 These included articles 1.4 (Notification), 5.2 (Detention), 7.5 (Post Clearance Updating the TFA needs assessment would provide Audit), 9 (Movement of Goods Intended for Import Under an opportunity for broader stakeholder consultation. Customs Control), 10.5 (Preshipment Inspection), 10.6 Discussions with the Ministry of Industry, Trade and (Use of Customs brokers). Investment (MITI) and other stakeholders indicated that the TFA needs assessment process did not follow a At the regional level, in early 2015, the United Nations rigorous consultation process with all key stakeholders Conference on Trade and Development and the German (for instance, the TRA and the Tanzania Freight Society for International Cooperation initiated an EAC Forwarders Association [TAFFA] were not fully aware). trade facilitation project which aims to develop strategic The new National Trade Facilitation Committee (NTFC) planning on trade facilitation at both the national and provides an appropriate institutional vehicle for driving regional levels and strengthening existing national and the process. regional trade facilitation bodies. In July 2016, a follow- up workshop was held in Dar es Salaam for representa- The TFA has built-in flexibility to accommodate tives from the key border agencies and private sector developing-country constraints. The TFA, concluded in stakeholders. Building on the momentum of the work- December 2013, recognizes the needs of developing and shop, Tanzania set up the NTFC with 52 members. CHAPTER 4: Border Management, Trade Logistics, and Transport | 35 Border Management Agencies brokers association) indicated that over 80 percent of cargo is still being selected for inspection. The very high The TRA is the lead agency responsible for managing incidence of physical inspection indicates the absence of the borders and customs clearances. Established in sound risk management. The cargo selected for physical 1995, the TRA is responsible for managing the assess- inspection, will take much longer to clear than with non- ment, collection, and accounting of all central gov- physical inspection. Therefore, information on the delay ernment revenue. It is a semi-autonomous body that or speed of clearance procedures is vital to assess the operates in conjunction with the Ministry of Finance and efficiency of border management. This is also reported Planning and is the leading agency in managing the bor- in the recent TFA needs assessment, where article 7.4 ders. According to the WCO (2015), Tanzania reported (risk management) was not fully aligned (category A) 289,221 declarations with a staff complement of 1,964 In with requirements of the TFA. fiscal 2016 (ending in June 30), the TRA collected T Sh 5,351 billion (approximately US$2,432 million). The TRA implemented a Customs Modernization Action Plan for 2009–12, introduced the modular TANCIS in Since its inception, the TRA has evolved from a tax 2014 and is currently preparing their next Corporate administration that focused only on revenue collection Plan (2017–22). to an organization that gives special attention to the type of services provided to its customers. It has achieved The TRA risk-based system is not functioning effectively. it by rationalizing the tax system and administration to Following international best practices, which shows that make them simpler and more transparent with the aim risk-based cargo clearance systems facilitate increase of increasing both voluntary compliance and govern- compliance and improve efficiency, Tanzania introduced ment revenue. According to the TRA, in 2015, 3.7 percent risk assessment more than a decade ago and train- of the total registered importers (1,804) contributed to ing was provided under the Customs Modernization over 80 percent of revenues and is expected to reach 4 Strategy 2009–10 to 2012–13. Imports are channeled percent in 2016. using the traffic light system of classification. The three categories are: green for low risk and no inspection, More than 70 percent of all trade is processed through yellow for medium risk with a document inspection, and the port of Dar es Salaam. Clearances are authorized red for high risk and subject to both documentary and at 86 customs stations, including 25 seaports, and 8 air- physical inspection. However, following several high- ports, although more than 90 percent of all clearances profile smuggling cases, the Ministry of Finance intro- are through 9 major border stations. The TRA also oper- duced a Directive in 2013 requiring 100 percent cargo ates 6 transit-monitoring stations. All the major entry inspection. When the TRA upgraded their electronic cus- points use electronic clearance. toms clearance system in 2014 to the TANCIS, it included a more robust and more effective risk management Currently, customs control is premised on the outdated module. However, the 2013 Directive has hampered full concept of prioritizing real-time physical inspection, implementation of TANCIS. rather than making extensive use of risk assessment. The purpose of risk management is to secure and The Ministry of Finance issued a letter to the TRA in improve traders’ compliance: higher risk of noncompli- April 2015, indicating its decision to repeal the earlier ance should be subject to more stringent controls while Directive and allow the TRA to implement the risk- lower risk should be awarded with simplified and more based inspection system, thus gradually reducing the user-friendly controls. However, in the case of Tanzania, rate required for physical inspections at the port in Dar there is no clear indication to illustrate that a sound risk es Salaam. As a first phase of the risk-based system management approach is being applied in the clear- implementation, the TRA will inspect at least 80 percent ance of cargos. All containers are subject to compulsory of all import cargo, with the expectation that the rate physical scanning, which increases costs and slows will be reduced further depending on the progress down port clearance times.8 Preliminary formal discus- in controlling fraud cases in customs declarations. sions with senior customs and TPA staff and the private At the same time, with external technical assistance, sector (including a representative from the customs TRA has adopted its capacity-building action plan in TANZANIA DTIS 2017 | 36 implementing its risk-based customs management between trade facilitation and effective control. under TANCIS. Full implementation of the risk-based Furthermore, these advances were aimed at increasing inspection system would facilitate cargo customs clear- the competitiveness of Tanzanian exporters, attracting ance and reduce the average time to export and import. further foreign investment, and fully exploiting new TFA Article 7.4 requires that a risk-based approach be business opportunities. applied to cargo clearance. This resulted in the development of the TANCIS, which At the national level, a compliant trader scheme (CTS) was rolled out in 2014. The project was co-financed by for importers became operational in Tanzania in July the Tanzanian government and the Investment Climate 2007, (operationalized in 2008), which included, at the Facility (ICF). TANCIS was designed as a web-based beginning, 55 traders or operators, who accounted for system that will facilitate moving towards paperless 60 percent of the revenue collected.9 In 2012, a two-year operations and reduce the costs of doing business by pilot for a regional CTS in the EAC started in the five facilitating increased transparency, reliability, and effi- member countries, with each country authorizing three ciency. TANCIS is a modular-based system with over 35 traders, for a total of 15 traders within the region.10 different modules developed, covering a varied array of operations. The TRA is the custodian and administra- Border agencies controls are mandated by a national tor of TANCIS. This new system has automated many regulatory framework, with specific policy objectives, regulatory activities, enabling the TRA (and potentially such as revenue collection, trade and industry policy, other key border agencies) to effectively and efficiently fair competition, health and safety, and security. Since perform their respective regulatory functions. To date, the available resources mobilized by border agencies TANCIS is only being utilized by the TRA. These include, are limited, reasonable selection of cases for inspection issuance of licenses, electronic lodgment of declara- is one solution to facilitating trade while maintaining and tions,11 electronic payment, issuance of receipts and improving the quality of control. account management, monitoring movement of transit cargo, monitoring bond operations, and so on. The sys- tem has also enabled electronic connectivity between Tanzanian Customs Integrated System the TRA and all the registered stakeholders to allow for Modern technologies—notably ICTs—enable border direct trader input.12 agencies to process their work in an expedited and accurate manner. Information technology (for example, Anecdotal evidence shows that with the implementation customs declaration processing system) can assist of TANCIS, cargo clearance time has reduced. However, border agencies to verify large volume of declared the TRA has not carried out a TRS or a study to assess data, screen by preset criteria, calculate the amount, the impact of TANCIS on cargo clearance. The preimple- and produce management reports in an expedited mentation predictions of the time between lodging of and accurate manner. Communication networks documents to issuance of customs release orders at the allow traders to submit data from their premises and port in Dar es Salaam was expected to reduce from 4 enables different computer systems to be interfaced, days to 1 day, while goods clearance time was expected such as electronic fund transfer with commercial to reduce from 5 days to 1 day for export goods and banks, and “single window” with multiple agencies’ from 9 to 5 days for import goods. processing systems. In terms of better performance measurement, it is also Tanzania used different versions of ASYCUDA for essential to carry out regular reviews of the overall nearly 15 years. However, with continuous demand time it takes to clear the border as well. These measure- from the business community to increase the quality ments will enable the preparation of reliable border and efficiency of customs service, in 2011, a strategic performance indicators (which are usually based on decision had been taken to develop a comprehensive the aggregated time spent at the border station and automated system tailored to meet all user needs. in queues, if any), so that any new measures could be It became clear that the introduction of advanced practically assessed in real time, and early identify any ICTs would be crucial to achieve the desired balance discrepancies and take corrective actions. CHAPTER 4: Border Management, Trade Logistics, and Transport | 37 National Single Window and TANCIS capacity-building; • Selection and implementation of an information tech- Following the implementation of the TANCIS, in 2014, nology and payment system for the NESW; and the software appears to have proved itself as a reliable • Pilot tests of the NESW in various locations. and versatile automated system, catering to the needs of both the public and private sectors in Tanzania. The Implementing a NESW in the Dar es Salaam Port system illustrates a considerable degree of flexibility, requires effective inter-agency coordination, and is very enabling system changes as and when needed, based different from the Port Community System required on user requirements. for improved port functioning. The introduction of the NESW system in the Dar es Salaam Port and the other The Tanzanian government is exploring the possibility TPA-managed ports, requires TANCIS (managed by the of establishing TANCIS as the platform for a NESW in TRA) to be linked to the Port Community System which Tanzania, which appears to have the functionalities for is being procured (and would be managed by the TPA). A a single-window platform with some modifications. The steering committee will be established by the Tanzanian TRA has been entrusted with responsibility for taking government to oversee the implementation of the NESW the lead role in planning and implementing the NESW and to adopt the necessary regulations and/or laws. and several other government agencies are currently interfacing with TANCIS. The NESW process would involve traders submitting an electronic form (request for approval) to the relevant The Tanzanian government has committed to transition- agency (or agencies). These agencies would therefore ing to multi-agency integration through connecting the need to reengineer their processes so that they can TRA customs clearances through TANCIS with other provide a one-day turnaround for approvals compared agencies involved in regulating imports, such as the to 12–15 days before the NESW. The agency would Tanzania Bureau of Standards (TBS), the Tanzania Food then provide an electronic approval to the trader and and Drugs Authority, and the immigration authorities. simultaneously supply a copy to customs, who would electronically insert the approval and license details It is therefore critical that the Tanzanian government into the electronic customs declaration—thus saving and key stakeholders work to develop a vision for time and costs to the trader. Once customs conclude implementation of the NESW in accordance with Article their inward goods approval process with the Dar es 10.4 of the TFA. Institutional integration has taken place Salaam Port, traders would then receive an electronic (notably through the concept of one agency coordinating confirmation that their goods are available for collection the others at a border station, or placing all technical from the port. This will require internal cooperation to agencies in the same office as customs). Cross-border ensure that all the authorities and agencies responsible collaboration exists on the surface, but needs to be for border controls and procedures cooperate with one strengthened—notably in terms of mutual recognition of another and coordinate their activities in order to facili- findings and moving to joint operations. tate trade. Single Window: Coordination, Transparency, Security, Port Community System and Information Technology Implementation of the NESW remains a priority for Efficient ports and modern shipping require a Tanzania. The main tasks of the team responsible for comprehensive management information system that implementation include: links all members of the port community. The port of Dar es Salaam requires a Port Community System • The development of the NESW for port and customs (PCS). The PCS functions as a hub bringing together clearance; all the port management information systems that • Preparation of a roadmap for the NESW; includes an Automatic Identification Systems, a Vessel • Compiling information on decrees and procedures for Traffic Management System, and a Port Operating export, import, customs, and port clearance; Systems (POS). Such systems, when combined with a • Socialization, technical assistance and Port Community System acting as the hub, are able TANZANIA DTIS 2017 | 38 to offer a wide range of advantages to the transport Ensuring easy access to technical regulations and sector in the country and the region by improving the standards is essential for competitiveness. A recent efficiency and productivity of port operations. The assessment of the National Quality Infrastructure and benefits of these improvements pass not only to port Technical Regulations Regime (Kellerman, 2016) found operators but also to port customers including shipping the standards development process to be “largely lines, freight forwarders, and shipping agents. At the compliant” with the WTO’s Technical Barriers to Trade national level, the entire port community and those Agreement. Standards are provided in hard copy to who depend on it can benefit from the provision of an local enquiries and through a print on-demand system enhanced and economic logistic chain for international for foreign requests. Approximately 40 percent of the shipping. PCS, at the national level, can provide logistic older national standards are not available in electronic chains, which improve the coordination and cooperation format. The TBS website contains a list of 602 manda- of land transport, maritime transport, and the ports tory standards that was put online in December 2016.13 operations in the region. By linking all members of the The Standards Catalogue (online) has not been updated port community, the network system is of benefit to since June 2009. Ensuring the availability of up-to-date the TRA, police, immigration authorities, the Ministry of standards information is essential for competitiveness Works, Transport and Communications, MITI, and many and should be available for purchase on line. The techni- others. For the TPA, the benefit from implementing a cal regulations should be available free of charge online. modern, comprehensive, and integrated Port/Terminal IT System will result in less paperwork, less time Transparency, Information, and and effort spent, better decision-making, reduction of unnecessary cost, increase of productivity, less error Communication Mechanisms and redundancy, and an increase in overall satisfaction for the port’s stakeholders. Obtaining accurate information on trade regulations and procedures is onerous and time consuming. There are more than 30 agencies involved with cross-border Other Border Management Agencies trade clearances, with about 102 different trade-related The TPA, the Ministry of Agriculture, the Tanzania Food documents covering different types of licenses, per- and Drugs Authority, the TBS, the Ministry of Energy mits, certificates, and approvals. Considerable work is and Mineral, and the Ministry of Natural Resources and required to ensure traders have access to all the regu- Tourism are some of the key agencies that regulate and latory and procedural information required for import- administer cross border trade. ing and exporting goods. Although many regulatory agencies maintain a website, the information is often Standards are managed by the TBS, which is a incomplete, outdated (for example, the TRA website lists government agency under the MITI for mainland the 2012 Tariff Schedule), and difficult to find. Ensuring Tanzania; Zanzibar has its own Standards Bureau. The easy access to accurate and relevant information main functions of the TBS (as set out in the Standards reduces trade costs. The World Bank Group is assisting Act of 2009) are to undertake measures to control the several countries—building on work with Lao People’s quality of products and to promote standardization in Democratic Republic, Lesotho, and Malawi—to develop industry. More specifically, the TBS is responsible for integrated Trade Information Portals, where all the developing and publishing the national measurement relevant information on laws, regulations, procedures, standards, establishment and maintenance of the forms, and tariff rates and fees can be obtained via one national measurement standards, providing testing easy-to-search website. services, operating a product certification scheme, and administering technical regulations (that is Publication of the trade information described in the TFA mandatory standards). The TBS is a member of the is the responsibility of multiple government ministries International Organization for Standardization and and agencies who administer laws, regulations, and International Electrotechnical Commission and, in the directives related to trade. Various legal acts or formal region, the EAC Standards Committee and the SADC policies define the scope of their respective respon- Standards Cooperation. sibilities. Best practice examples of trade facilitation CHAPTER 4: Border Management, Trade Logistics, and Transport | 39 reform highlight the importance of adopting a holistic and fees) and charges, penalties, enquiry points, and approach. Ad hoc and incremental reforms often fail to appeal mechanisms. demonstrate much improvement at the national macro level. For instance, coordination and partnership among For instance, while laws and regulations are often stakeholders is essential. Illustrative examples include: drafted by sponsoring ministries or on an agency basis, 24-hours-a-day, 365-days-a-year operation; goods in many cases, enforcement is delegated to another description harmonization; single payment of fees; single ministry or agency. In order to secure the accessibility window; and one-stop border posts. None of these can in such a structure, information on the hierarchy and be realized without active stakeholder participation.14 pertinent laws and regulations should also be available From the perspective of change management, stake- to the interested parties. holder engagement is imperative for ownership on reform initiatives that will reduce the conflict costs in Moreover, availability of recourse or appeal mecha- reform operations. nisms, when the border agency’s rulings are against the interpretation of the economic operator, also enhances Advance consultation and notification is important for predictability. Ideally, there should be at least two paths businesses. Article 2 of the TFA requires members to for recourse: administrative and judicial. For instance, provide opportunities and an appropriate time period for the benefit of administrative appeal mechanisms is the all interested parties to comment on the proposed intro- expedited process and expertise they can bring. duction or amendment of laws and regulations related to the movement, release, and clearance of goods, Port Efficiency and Border Clearances including goods in transit. In Tanzania, however, the private sector reported that they are rarely consulted Dar es Salaam Port is the gateway to East Africa and its when the government takes any decisions related to efficiency matters to Tanzania and the region. The port— trade. For instance, discussions with the MITI and other the fourth-largest in East Africa after Durban, Mombasa, stakeholders indicated that the TFA needs assessment and Djibouti—is the main sea port and cargo entry point process did not follow a rigorous consultation process to Tanzania, yet, is also one of the least efficient ports. with all key stakeholders (for instance, the TRA and the Over 90 percent of cargo is imported and exported from TAFFA were not fully aware of the consultation). Tanzania through the port of Dar es Salaam. The port al- so serves as the entry point to Burundi, Democratic Re- Moreover, several conflicts of interests and conflicting public of Congo, Malawi, Rwanda, Uganda, and Zambia roles were identified in various structures in Tanzania, (which are landlocked countries). The port has 11 berths which not only create opportunities for corruption but and handled about 15 million tons of cargo in 2016. also reinforces and increases inefficiencies as many gain from them. Thus, reducing existing conflict of interests Inefficient port and customs operations in Tanzania are that contribute to increase the risk of collusive behavior increasing the time and trade costs associated with at the expense of end-users could reduce the power of international transactions. This represents a major current “winners” who profit from the status quo. constraint to doing business. All containers are being scanned and are subject to customs physical inspection, Economic operators make business decisions by col- which has caused huge delays in the port. No risk man- lecting and assessing information that would affect their agement is applied currently, thus compliant containers possible trade transactions in terms of cost and time are being physically inspected as well. There are more before they conclude sales. Transparency of information than 30 other government agencies involved in adminis- is therefore based on the accessibility of information tering and regulating cross-border trade, and there is a on import, export, and transit rules, regulations, and lack of coordination between all these agencies, which procedures. Such information includes administrative causes further delays. There is also no clear plan for information (for example, office opening hours and loca- reducing the number of agencies at the border.15 It is tions), formalities, prohibition (or restrictions), licensing reported that, on average, the clearance time per con- (or certificate requirements), applicable duties (or taxes tainer is 12–15 days. TANZANIA DTIS 2017 | 40 Reviews by the TPA, the World Bank, and others have all actual exit from the port (or the off-dock container yard). highlighted the potential for improving operational and The “dwell time” is the difference between the arrival of spatial efficiency within the port. The TradeMark East the ship and the exit of the container from the terminal Africa program is currently assisting the TPA with fund- (either port terminal or off-dock container yard). The ing for new access roads and security gates. The World results are as follows (IM4 is clearance for Tanzania, IM8 Bank has supported the TPA in designing the Dar es is transit): Salaam Maritime Gateway project to support Tanzania to realize the goal of unlocking the potential of the Central • EWD: the container exits the port well before the Corridor and increasing the capacity of the port to 22 declaration is lodged, which is shown by the negative million tons per year. There is also funding provided to time to exit. introduce a new port community system, and terminal • PAD: the declaration is lodged prior to the arrival of operating systems where necessary. the ship (this is the most common scenario). • PMD: the declaration is lodged after the arrival of the ship (sometimes well after). Release Time at the Tanzania Borders To measure customs performance for releasing goods, The main clearance plans for TANCIS are PMD (post it is the PMD plan which is the clearest indicator, in the manifest declaration), PAD (prearrival declaration), and PAD, the release cannot take place before the actual EWD (ex-warehouse declaration). Knowing under which arrival of the goods, and therefore the release time is clearance plan the declaration has been handled is influenced by the degree of anticipation of the declara- critical to understand the meaning of the release time. tions, and EWD is a specific regime benefitting a limited In the following example, based on data from Dar es set of traders. Salaam port for 2015, the “time to declare” is the differ- ence between the arrival time of the ship in the port and On average, release times are long, over 10 days. This is the time the declaration is lodged, the “time to release” partly explained by the dominance of the Red channel, is the difference between the time the declaration is but even for Green, the release time remains over three lodged and the customs release, and the “time to exit” days. For transit, the performance is better. The detailed is the difference between the customs release and the breakdown is shown in Table 4.1 TABLE 4.1: Dar es Salaam Customs Clearance Time by Channel Customs regime Number of containers Time to declare (days) Time to release (days) Time to exit (days) Dwell time (days) Clearance for Tanzania 131,578 15.1 -3.0 19.2 EWD 12,525 91.2 6.6 -78.4 20.2 Green channel 516 46.9 5.0 -49.2 17.3 Red channel 860 82.9 15.2 -79.3 17.1 Yellow channel 11,149 94.1 6.0 -79.7 20.6 PAD 104,978 -4.6 16.7 4.6 16.6 Green channel 17,846 -2.6 11.6 7.5 16.5 Red channel 84,367 -5.1 17.9 3.8 16.6 Yellow channel 2,765 -1.0 11.6 9.4 20.1 PMD 14,075 18.2 10.9 8.1 37.2 Green channel 2,710 16.7 3.5 16.5 36.7 Red channel 10,520 18.7 13.3 5.3 37.3 Yellow channel 845 17.7 5.6 15.6 38.9 Transit 48,170 5.1 3.0 9.7 17.8 PAD 21,653 1.1 5.4 8.9 15.4 Green channel 75 0.8 0.9 2.5 4.2 Red channel 11 1.9 7.2 1.9 11.0 Yellow channel 21,567 1.1 5.4 9.0 15.4 (Table continues next page) CHAPTER 4: Border Management, Trade Logistics, and Transport | 41 TABLE 4.1 (continued) Customs regime Number of containers Time to declare (days) Time to release (days) Time to exit (days) Dwell time (days) PMD 26,517 8.4 1.0 10.3 19.7 Red channel 9 3.8 6.2 5.2 15.1 Yellow channel 26,508 8.4 1.0 10.3 19.7 Total 179,748 5.4 11.9 0.4 18.8 Source: Data received from TRA for Dar es Salaam Port. Notes: EWD = ex-warehouse declaration; PAD = prearrival declaration; PMD = post manifest declaration. The routing of the declarations at the Dar es Salaam implemented since 6th May 2015, instead of the 100 per- Port for the PMD is indicated in figures 4.5 and 4.6. The cent physical verification that was enforced before. proportion of the Red channel is very high, but some declarations in the Yellow channel passed to the Green Dar es Salaam and Kilimanjaro Airports channel. This proportion is linked to the Tanzanian government’s directive that requires 80 percent of The routing for declarations at the two airports (Dar es containerized cargo be subjected to physical examina- Salaam and Kilimanjaro) are shown in figures 4.7 and tion and 20 percent be subjected for other risk criteria, 4.8. The impact of the directive on physical examination FIGURE 4.5: Dar es Salaam Port: Share of Containers by FIGURE 4.6: Dar es Salaam Port: Release Time by “Risk” “Risk” Channel, Apr 2014–Dec 2015 Channel, Apr 2014–Dec 2015 100 16 14 80 12 60 10 Percent Days 8 40 6 4 20 2 0 0 Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 Red channel Yellow channel Green channel Red channel Yellow channel Green channel Source: Derived from Tanzania Revenue Authority data. Source: Derived from Tanzania Revenue Authority data. FIGURE 4.7: Dar es Salaam and Kilimanjaro Airports: Imports FIGURE 4.8: Dar es Salaam and Kilimanjaro Airports: Release by “Risk” Channel, May 2014–Dec 2015 Time by Risk Channel, days, May 2014–Dec 2015 100 70 60 80 50 60 40 Percent Days 40 30 20 20 10 0 0 Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 Red channel Yellow channel Green channel Red channel Yellow channel Green channel Source: Derived from Tanzania Revenue Authority data. Source: Derived from Tanzania Revenue Authority data. TANZANIA DTIS 2017 | 42 is very noticeable at the airports, where the proportion for conversion into OSBP, but on numerous instances, of Green channel increased to 70 percent. expectations and benefits failed to fully materialize. Namanga Land Border with Kenya Baseline surveys for the main Northern Corridor bor- ders between Kenya, Uganda, and Rwanda, and also The situation at the land border with Kenya is more in support to the ECOWAS Joint Border Post Program, worrying. Figures 4.9 and 4.10 indicate very long release measured the time spent at the border decomposed times. In the absence of corresponding information on step-by-step to identify areas for improvement the physical movements of the trucks, it is difficult to (Fitzmaurice and Hartmann 2013). In the specific case assess the impact of such long times in the duration of of the East Africa surveys, a preliminary attempt at the border crossing. evaluating the savings for the trucking industry and the shippers had been made, enabling a comparison of the One-Stop Border Post Framework cost of establishing an OSBP versus its benefits on high- volume corridors. for the EAC16 The surveys clearly show that the necessary Land borders are often considered as obstacles, and institutional and regulatory reforms are often more a variety of remedies have been experimented. A solu- important than upgrading the physical facilities for the tion has emerged at the continental level in Africa, the reduction of border crossing times, and that improving One-Stop Border Post (OSBP), also known as Joint the institutional and regulatory framework is critical Border Post in West Africa. The conversion of mainland when designing border-crossing interventions. Tanzania border crossings into OSBPs has now been included in the action plan of most Regional Economic The EAC OSBP program is part of the EAC Communities (RECs) (notably West African Economic and infrastructure development program developed in Monetary Union, Economic Community of West African 2006. Under the OSBP Program, the EAC Secretariat, States, EAC, SADC, and Common Market for Eastern and along with the EAC partner states and development Southern Africa). Since the first pilot programs for the partners, identified a number of border posts across establishment of OSBPs, the collective experience of the the region for conversion into OSBPs. The development RECs, corridors, and development partners had been of a Regional Legal Framework was central in that compiled in the OSBP Sourcebook published in 2011, program, so that a common approach and vision for largely drawing lessons from the EAC OSBP program. establishing OSBPs in the region can be achieved. The Since then, many more borders have been earmarked EAC Secretariat prepared a policy paper on OSBPs in FIGURE 4.9: Namanga Land Border with Kenya: Imports by FIGURE 4.10: Namanga Land Border with Kenya: Release Risk Channel, days, Nov 2014–Dec 2015 Time by Risk Channel, days, Nov 2014–Dec 2015 100 35 30 80 25 60 20 Percent Days 40 15 10 20 5 0 0 Dec Feb Apr Jun Aug Oct Dec Dec Feb Apr Jun Aug Oct Dec 2014 2014 2014 2014 2014 2014 2015 2014 2014 2014 2014 2014 2014 2015 Red channel Yellow channel Green channel Red channel Yellow channel Green channel Source: Derived from Tanzania Revenue Authority data. Source: Derived from Tanzania Revenue Authority data. CHAPTER 4: Border Management, Trade Logistics, and Transport | 43 2010, to inform discussions among stakeholders on the Based on the success of the conversion of the Northern necessity and appropriateness of a dedicated EAC OSBP Corridor borders into OSBPs, the dramatic reduction of Act. To this end, the OSBP policy paper provided a basis border crossing time enabled trucking operators to uti- for the approval by the EAC Council of activities for the lize more efficiently their trucks, therefore containing the formalization of the EAC OSBP Act, including enactment increase in costs, and in some instance, even contribut- by the EAC Legislative Assembly and assents from ing significantly to the reduction of transport prices. the heads of state of the EAC partner states. In 2010, the EAC carried out a study of the legal requirements Small-Scale Trade for the introduction of OSBPs in the region. The study reviewed the existing legal instruments and Small-scale cross-border trade, with emphasis on facili- policies to determine the optimal legal framework for tating trade across borders, fosters shared economic implementing OSBPs in the EAC. In addition, the study growth, promotes regional integration, and contributes analyzed laws and regulations governing the operations to achieving food security, as it primarily involves agri- of border control agencies with a view to determining cultural products. Small-scale trade is also a major the requirements for border operations under the OSBP source of livelihood for many, especially in rural areas, framework. The study also involved the preparation of a and particularly for women: estimates indicate that up to legal framework for the EAC that could be applied at all 70–80 percent of the small-scale cross-border traders internal OSBPs in the region (that is, border crossings on the subcontinent are female. Therefore, small-scale between pairs of EAC Partner States). cross-border trade facilitation holds significant potential for poverty eradication, as well as for women economic By September 2015, the EAC OSBP Bill had been empowerment and for the achievement of gender (eco- assented to by four of the five EAC heads of states. In nomic) equality. For cross-border traders, obtaining order to facilitate implementation of the EAC OSBP Act permits and complying with all the approvals required upon full assent, the EAC has embarked on the process for exporting is prohibitive and crowds out their partici- of developing the EAC OSBP Regulations even before pation in the formal sector. the full assent to the OSBP Bill. Using the same ratio- nale, the development of EAC OSBP regional procedures Dar es Salaam Maritime Gateway Project commenced in August 2015, while awaiting the enact- ment of the OSBP Act. The Dar es Salaam Port serves as the ‘anchor’ con- necting the landlocked countries of the interior via The EAC OSBP program covers the following Tanzania the Central and Dar Corridors to global markets. The borders: Central Corridor runs 2,170 km from Dar es Salaam and links Uganda, Rwanda, Burundi, and Democratic 1. With Kenya: Namanga, Taveta-Holili, Lunga Lunga- Republic of Congo, and Central and Northern Tanzania. Horo Horo, Isibania-Sirari The Dar Corridor, forms part of the North-South 2. With Uganda: Mututkula-Mutukula Corridor for 1,900 km from Dar es Salaam to Kapiri 3. With Rwanda: Rusumo-Rusumo Moshi in Zambia, and connects Tanzania, Malawi, Zambia 4. With Burundi: Kobero-Kabanga and the Democratic Republic of Congo. Increasing the capacity and efficiency of the Dar es Salaam Port prom- Under the wider Tripartite Regional Integration ises to benefit Tanzania and the broader region. Program, additional borders of Tanzania are earmarked for conversion into OSBPs: The Dar es Salaam Maritime Gateway Project aims to improve the effectiveness and efficiency of the Dar es 1. With Zambia: Tunduma-Nakonde Salaam Port. The project has two components: improve- 2. With Malawi: Kasumulu-Songwe ments to the physical infrastructure and institutional 3. With Mozambique: Unity Bridge strengthening and implementation assistance. The (Mtambaswala-Namoto) project will result in reduced ship waiting times, higher rates of berth occupancy, increased throughput (boxes per hour), and reduced vessel turnaround times. TANZANIA DTIS 2017 | 44 The Great Lakes Trade Facilitation Program EAC Operation to Accelerate Regional Integration in the East Africa The facilitation of trade among the Great Lakes countries was identified as a key priority. This initiative The overall objective of this project is to contribute to seeks to promote regional peace and stability through regional integration through policy reform, infrastruc- programs to improve livelihoods in border areas, ture developments and capacity building in agriculture, promoting cross-border trade and strengthening trade in services, small trade, and ICT connectivity to economic interdependence. The Great Lakes Initiative (i) improve access to farm inputs by streamlining and has two pillars: the first pillar is designed to address harmonizing fertilizer and seeds standards, (ii) increase vulnerable groups and improve community resilience, regional trade in services by easing labor mobility; (iii) and the second pillar focuses on economic cooperation improve access of small-scale traders to regional mar- and regional integration. The second pillar seeks to kets by easing cross border trade; (iv) improve connec- support the countries in the region by providing small- tivity through access to ICT solutions; and (v) improve scale infrastructure, removing barriers to trade and country level and regional capacity to monitor and economic integration, providing employment (especially implement policy reforms. for youths), and raising agricultural productivity to alleviate poverty. Project beneficiaries will primarily be (i) farmers; (ii) services providers in selected sectors as well as con- The Great Lakes Trade Facilitation Program (GLTFP) sumers and users of such services; (iii) cross-border is designed to contribute to pillar II, by supporting traders, especially women, vulnerable families in bor- interventions that facilitate and promote cross- derland areas; and (iv) national and regional policy insti- border trade in the border regions of the Great tutions tasked to monitor and implement policy reforms Lakes countries—and in particular, borders between that accelerate regional integration. eastern and southern Democratic Republic of Congo and its Great Lakes neighbors. The program takes a This project seeks to create new and more stable mar- holistic approach to facilitating trade in both goods ket opportunities for poor farmers, facilitate the move- and services, by supporting modest infrastructure ment of services providers, and improve the border improvements at selected borders and lake ports, and trade environment, with a particular focus on small- policy and border management reforms that make the scale traders. There is substantive potential to improve region more attractive for trade-related investment. livelihoods, create jobs, and promote regional coopera- tion through trade facilitation reforms, but the precise The GLTFP is designed in two phases. The first phase nature of interventions will depend upon each country’s focuses on the border crossings and border areas particular context and strategic objectives. between the Democratic Republic of Congo, Uganda, and Rwanda. The second phase seeks to promote economic development in the Great Lakes border Role of the Private Sector in Trade Facilitation areas, particularly between the Democratic Republic and Logistics of Congo, Burundi, Tanzania, and Zambia, through targeted trade facilitation and trade promotion reforms. Consultation and collaboration with the private sector There is tremendous potential to improve livelihoods, is a key aspect in trade facilitation and logistics reform generate good jobs, and promote regional stability and process. Without understanding private sector’s con- cooperation through trade facilitation reforms, but the cerns and the barriers that prevent them from starting, precise nature of the reforms and interventions will operating, and growing their businesses, no government depend upon each country’s particular context and can claim to set up a comprehensive reform agenda strategic objectives. that will bring a real difference to its people. Successful governments have established effective platforms that allows regular consultations between the public and private sectors to better understand private sector’s concerns and thus making them an important part of CHAPTER 4: Border Management, Trade Logistics, and Transport | 45 the reform process. Discussions revealed limited rou- and competitiveness agenda, and with the TFA has now tine consultation between TRA and RPA and the private been formally recognized as one of their key pillars for sector on proposed reforms. The port community coun- development. cil is effectively moribund. Consultation and dialogue needs to be more widespread, ranging from having Discussions with the private sector and the public agen- private sector membership in steering committees cies involved in the clearance process suggest that and working groups, to a broader consultative process overall, in Tanzania, there is a strong need for improved including businesses. and predictable processes for regulatory processes, and increased coordination between trade-related agen- cies and with the private sector, with concrete support Availability, Quality, and Performance of for trade facilitation and logistics and policies to sup- Logistics Services port the entire supply chain approach—from port to end user. Ensuring the availability of accurate information on There are 680 licensed freight forwarders in Tanzania, the regulations and administrative processes required who are also members of the TAFFA. They are licensed for importing and exporting goods is very important. by the Customs Department. Freight forwarders are Establishing and maintaining a trade information portal required to complete a week -long training course spe- is a proven tool for ensuring all traders, both large and cializing in classification and valuation. Consideration small, domestic, regional and international have ready could also be given to rating and classifying freight for- access to the required information. warders and publishing a performance table. This would provide useful information to traders and also act as a Realizing more efficient border clearance requires fur- spur to improve efficiency and compliance. ther improvements in both customs procedures (by the TRA) and other border control agencies. For customs, The effects of trade liberalization and trade facilitation even though the TRA currently applies some risk man- are undermined if logistics services providers impose agement, physical inspection rates remain very high and high and additional fees, taking advantage of govern- risk management is solely carried out by the customs ment regulations on the compulsory use of such ser- department at the port terminal, with the information vices and control on market entry or market access. flow being given from customs headquarters and the Some of the government regulations for instance risk management channels do not necessarily corre- affect traders’ choice of logistics services providers. spond to international standard risk management chan- For example, in the trucking sector, the service quota nels. However, in modern risk management systems, licensing, limits market entry and freight charges tend risk assessment can take place at all levels. to be higher than in competitive environments. National requirements on services can force transshipment at Areas where potential reforms were identified include: the border or one-way empty transport (trucks can move goods only one-way since they cannot pick up • Link to multilateral initiatives:  Revisit findings in the goods in the destined foreign country). The issue is TFA needs assessment report and examine the cur- important for all countries in the region including both rent situation specially, in relation to Article 1 (publica- the landlocked and transit economies. tion and availability of information), Article 7 (release and clearance of goods), Article 10 (formalities con- nected with importation, exportation, and transit), and Recommendations Article 11 (freedom of transit). This chapter highlighted key issues that need to be –– Building on the challenges outlined in the recent addressed across the trade facilitation and logistics sup- Trade Facilitation Assessment, which established ply chain, focusing on identifying quick wins, including the level of alignment of Tanzania’s trade-related simplifying documentation, inspections, and procedures laws and administrative practices with all articles and reducing clearance time for imports and exports. of the TFA and assessed current trade facilitation Improving trade facilitation and logistics performance practices and systems and challenges, leverage the is at the core of the economic growth and the trade gap analysis and identified constraints and validate TANZANIA DTIS 2017 | 46 the gaps, including the status and capacity of all Notes relevant agencies, and identify what are the impor- tant actions and a sequence for implementation and 1.  The TFA will enter into force once two-thirds of the coordinating the sequence across the government 162 WTO members have completed their domestic rati- agencies and the private sector. fication process and, as of August 3, 2016, 90 countries have already ratified the agreement. The number of • Legal framework:  Undertake a legal framework country-by-country ratifications is fast approaching the review of border-related legislation and ensure that total of 108 required for the TFA to go into effect (WTO relevant provisions of the legislative framework are 2017). reviewed against international best practice in trade 2.  The six LPI indicators comprise two main cat- facilitation (WCO; General Agreement on Tariffs and egories: areas relating to policy regulations impact on Trade; revised Kyoto Convention; WTO TFA). inputs to the supply chain (customs, infrastructure, and quality of logistics services) and service delivery perfor- • Risk Management systems: mance outcomes (timeliness, international shipments, –– Provide assistance to expand risk management and tracking and tracing). in customs to other key border-related agencies, 3.  An economy’s distance to frontier is reflected on a in selected activities related to risk management scale from 0 to 100, where 0 represents the lowest per- implementation across all agencies, including for formance and 100 represents the frontier. For example, the creation of a customs risk management unit. a score of 75 in DB 2014 means an economy was 25 –– Provide assistance to further develop the second percentage points away from the frontier constructed phase for the Compliant Trader Program (national) from the best performances across all economies and and African Economic Outlook (regional) and assis- across time. A score of 80 in DB 2015 would indicate the tance to integrate scanner image analysis capability economy is improving. into risk management methodology. 4.  For example, the legislation provides for a transit guarantee scheme throughout the EAC, however, this is This work will leverage support on risk management not yet operational. already provided to the TRA by ICF for procurement of 5.  At the WTO’s Ninth Ministerial Conference, held in the TANCIS. Bali, Indonesia, on December 3–7, 2013, the 160 mem- bers unanimously adopted the TFA. This agreement, • Conduct a comprehensive TRS at the port of Dar es which became known as the Bali Package, aims to lower Salaam in consultation with the WCO (to identify spe- global trade barriers. It is the first agreement reached cific areas for assistance that could feed into: Customs through the WTO that was approved by all its members. Reform and Modernizations Strategy and TRA 5th 6.  The WTO TFA categories are as follows: Category Corporate Plan for 2017–18). A measures that a member will implement by the time • Carry out an assessment of the effectiveness of the agreement enters into force (least-developed coun- TANCIS as an automation tool in facilitating cross- tries can take an additional year), Category B measures border trade. for which the member will need additional time to imple- • Conduct a feasibility study on using TANCIS as the ment, and Category C measures for which the member platform for NESW in view of the text in Article 10.4.1 will need additional time and technical assistance or of the TFA and assist the government and key stake- capacity building to implement. holders to develop a vision for implementation of a 7.  Preparatory Committee on Trade Facilitation - NESW. Notification of category A commitments under the TFA • Implement a national trade information portal. - Communication from Tanzania, WT/PCTF/N/TZA/1, • Link to regional initiatives on trade facilitation, this Document # 15-2551. includes the EAC and other neighboring countries 8.  The TPA does not have the capacity to effectively including the Democratic Republic of Congo and interpret the images to assess risk. The present require- Zambia. ment for mandatory scanning collects revenue, adds to delays, and contributes little to increasing security. CHAPTER 4: Border Management, Trade Logistics, and Transport | 47 9.  Currently, 65 traders/operators are registered References under the CTS. 10.  Though in the initial phase, Kenya and Tanzania Fitzmaurice, Mike and Olivier Hartmann. 2013. only had 2 operators for a total of 13 operators for the “Border Crossing Monitoring along the Northern pilot. Corridor.” Sub-Saharan Africa Transport Policy 11.  According to the TRA, the following Customs Program Working Paper No. 96, World Bank Group, functional systems has TANCIS integrated: Prearrival Washington, D.C. Declaration, Customs Licensing Application Kellerman, Martin. 2016. Reforming Tanzania’s National Management, Oil Monitoring System, ASY-SCAN (web Quality Infrastructure to Drive Competitiveness in applications in ASYCUDA++ to facilitate e-documents), Regional and World Trade. Washington, D.C.: World ASY-BANK (web applications in ASYCUDA++ to facilitate Bank. e-banking), and Exemption Tracking System. WCO (World Customs Organization). 2015. World 12.  TANCIS has also interfaced with few other TRA Customs Organization Annual Report 2015-2016. systems such as the Central Motor Vehicle Registration Brussels: WCO. System, Driver’s license, iTAX system, and tax identifica- WTO (World Trade Organization). 2012. “Trade Policy tion number, as well as other key stakeholders’ systems. Review of the East African Community: Tanzania.” 13.  The TBS Standards Catalogue can be accessed at Trade Policy Review WT/TPR/S/271/TZA. http://www.tbs.go.tz/standards/. WTO (World Trade Organization). 2017. “Trade 14.  Stakeholders include service providers and ser- Facilitation Agreement Facility.” WTO, Geneva. http:// vice users, public and private sectors. www.tfafacility.org/. 15.  At the proposed One-Stop Border Post at Kasane-Kasumulu, Malawi has issued an order reducing the number of border agencies to four, however, to date, there has been no comparable decision by Tanzania. 16.  A full case study of the EAC OSBP framework is included in the OSBP Sourcebook 2nd edition, May 2016. 5 TANZANIA DTIS 2017 | 48 Agriculture: Trade and Regulatory Policies Agriculture is of vast strategic importance to Tanzania. Together with fisheries, agriculture accounts for around 31 percent of Tanzania’s gross domestic product and provides income for some 80 percent of the population (or around 42 million people) in 2016.1 The country is endowed with an abundance of fertile land, good rainfall, and other natural conditions well suited to producing a wide range of staple foods and high value agriculture products. With less than 25 percent of arable land uti- lized, Tanzania is thus in a strong position to leverage agriculture both as an engine for poverty reduction and as a driver of economic growth and trade revenue. Growth in agriculture has a disproportionate effect on reducing poverty. Countries with a track record of high agricultural growth have experienced substantial reduc- tions in poverty rates.2 Despite the importance of agriculture, the sector has lagged the rest of the economy leaving many stuck in poverty. For more than 20 years, agriculture has grown at half the rate of the rest of the economy. Since the 2005 DTIS, agriculture value added grew by just 3.7 percent, on average, compared with 8.6 percent and 7.5 percent annual average growth in industry and services, respectively (World Development Indicators, “Agriculture is of vast strategic World Bank 2016) Although long-term structural trans- importance to Tanzania. Together formation away from agriculture is not a problem providing more people earn their livelihood in other with fisheries, agriculture sectors, Tanzania remains predominantly rural, and the accounts for around 31 percent country’s strong performance in other sectors has not of Tanzania’s gross domestic been sufficient to mitigate rural poverty. As described in the World Bank’s (2015) Mainland Poverty Assessment, product and provides income the Tanzania’s National Strategy for Growth and for some 80 percent of the Reduction of Poverty (MKUKUTA) has given high priority to eradicating extreme poverty and promoting broad- population (or around 42 based growth. Through this strategy, Tanzania continued million people) in 2016.” to record a decline in basic needs poverty.3 Although CHAPTER 5: Agriculture: Trade and Regulatory Policies | 49 this is a significant achievement, most of these gains chains, strengthening research, improving agricultural have been in urban areas and rural poverty remains advisory services, and improving institutional coordina- pervasive. Inequality between rural and urban areas tion. Realizing higher farm level productivity requires has grown sharply over the past decade and more than improving access to higher quality agricultural inputs- 80 percent of the poor and extreme poor in Tanzania seeds and fertilizer, providing farmers with good quality are now rural.4 The government’s Agriculture Sector technical advice, and making it easier for farmers to sell Development Programme Phase Two (ASDP II) finalized their products. in September 2015 identifies the need for a “major policy shift” to boost agricultural growth. The ASDP II high- This chapter adopts a trade lens to the agricultural lights the necessity of increasing agricultural commer- sector by focusing on the policy and regulations for cialization and encouraging the cultivation of high-value, agricultural inputs and cross border trade. This chapter nontraditional crops. aims to: (i) increase understanding on the regulatory and administrative barriers to sourcing agricultural Taking advantage of the opportunities to increase Tan- inputs at competitive prices; (ii) consider how existing zania’s agricultural exports will benefit both Tanzanian trade regulations affect the competitiveness of farmers and their trading partners, especially those in Tanzania’s agriculture and have an asymmetric impact the EAC. As highlighted in the World Bank (2012) publi- on smallholder farmers and small traders, while also cation, Africa can Feed Africa, fragmented regional mar- addressing the unintended consequences of the high kets impose a cost on Tanzania and are increasingly be- tariffs on sugar and rice; and (iii) identifying throughout ing recognized as a significant contributory factor driv- how existing regulations and policies serve as specific ing the region’s growing dependence on food imports constraints impact on smallholders and small-scale from the rest of the world. With increased trade in ag- cross-border traders. ricultural products and increased regional integration (with lower trade costs) Africa could easily feed itself The report identifies four priority trade policy and creating countless new and remunerative jobs for small regulatory cross-cutting constraints which contribute traders and small farmers alike. to increasing trade costs. High trade costs reduce agri- cultural competitiveness which in turn results in lower Increasing productivity through reducing trade costs levels of investment and lower productivity advances. and streamlining regulations will support Tanzania in These include: (i) unpredictable application of export building resilience against potential climate changes. bans and a continued reliance on state marketing chan- The National Climate Change Strategy in 2012 seeks nels; (ii) high levels of protection and taxes; (iii) complex to strengthen the resilience of the agriculture sector and nontransparent regulations which limit access and to cope with variations in rainfall and temperature. It increase the price of agricultural inputs; and (iv) institu- identified the importance of promoting drought resis- tional challenges in complying with sanitary and phytos- tant crops, strengthening weather forecasting, pest anitary (SPS) measures. risk management, and postharvest processes. Work by the International Food Policy Research Institute 1. Unpredictable application of export bans and a shows that changing rainfall patterns will result in some continued reliance on state marketing channels areas increasing their yields while other will lose. With increasing rainfall rice yields were forecast to double. The imposition of export bans at short notice cre- These changes, of course, are not confined to Tanzania’s ates market uncertainty, discourages investment, and borders but occur in neighboring countries too making increase price volatility. Export bans reduce rural regional trade integration one of the best strategies for incomes and are rarely effective at reducing price coping with climate change. volatility. Even when the export ban is lifted, as long as smallholders believe there is a threat that it may In 2015, Tanzania adopted a 10-year Climate Smart be reinstated at short notice, investment in expanding Agriculture Program which identifies six strategic pri- production will be curtailed. Export bans are difficult orities. These include, improving productivity, building to enforce as large price differences across East Africa resilience and mitigation, promoting integrated value encourage informal trade. TANZANIA DTIS 2017 | 50 Reliance on state-controlled market channels that Cashewnut Board of Tanzania. While the WRS is cred- restrict how major commodities are traded is another ited by many for having stamped out collusion and important barrier to agriculture growth and poverty increased competition between processors, cashew reduction. Continued reliance on export bans for maize buyers and exporters say that the grading done by is a particularly contentious area of agriculture policy. warehouses is unreliable thereby depressing prices Despite numerous studies and reports from Tanzania as they factor in this risk. Large buyers also say that and elsewhere that show export bans contribute to closure of all marketing outlets other than WRS has price volatility, harm poor producers, and are rarely led them to stop support to farmers with new trees successful in preventing food from leaking across and extension advice needed to boost yields and qual- borders, Tanzania and other governments continue to ity. For their part, some growers have complained impose trade restrictions when they fear food insecu- of being paid in installments rather than on the spot, rity. During the 2015–16 El Niño event, Tanzania imposed which leads the poorest producers to sell for cash an export ban on maize due to pockets of food insecurity on the informal market even at a low price. Rather expecting that surplus food would flow to these areas than make WRS sales mandatory, therefore, a better rather than across the border to other places affected approach to consider would be to allow other private by the drought. Without the use of trade restrictions, channels to exist alongside the WRS, and to compete however, price signals would normally be sufficient to with the WRS, so that farmers and buyers each decide attract maize to the affected areas and/or to inform which outlet is best for them. government that a relief effort is needed. While the ban may have helped keep some maize in the country, 2. Reliance on high tariffs to protect sensitive regional grain traders and farmer representatives claim industries does little to promote investment and there was a very strong negative impact on farmers in may undermine long-term growth surplus zones who could have exported through legal channels but were forced to accept lower prices from The DTIS update also finds that Tanzania should cross-border dealers driven to smuggle. consider moving away from the use of very high tariffs to protect sensitive areas of agriculture. Under the Other examples of challenges associated with closed- EAC Common External Tariff (CET), most forms of market channels in Tanzania include: sugar and rice benefit from 100 percent and 75 percent tariff protection, respectively (or a minimum tariff of • Cloves can only be exported by the Zanzibar State US$200 per ton, whichever is greater). The Tanzanian Trading Company (ZSTC) which enjoys a 100 percent government states that temporary tariff protection is monopoly on the trade of this commodity. While ZSTC required for local producers who are unable to compete has taken important steps to streamline its operations on the global market owing to structural barriers in recent years, this policy prevents private firms including outdated seed, inefficient irrigation systems, from competing for business, even with ZSCT, through old processing equipment, and poor roads. While the provision of value added services and price incentives need for investment in these areas may be clear, it is to farmers. equally apparent that these high tariffs have created • Coffee was ostensibly liberalized in 1994 with the strong incentives for smuggling. Despite recent efforts introduction of private buying by large multinational to crack down on illegal activity, such efforts are likely companies, yet all coffee must still be sold on Moshi to be difficult and expensive to sustain, particularly Auction run by the Tanzania Coffee Board (TCB) or as there are legal exceptions to the CET by mainland through a direct export contract approved by the TCB. Tanzania’s neighbors (including an exception that allows Cross-border exports that would benefit from higher Zanzibar to import rice at only 25 percent duty and prices outside the TCB system are not allowed and Kenya to import rice from Pakistan at 35 percent duty). coffee may only exit Tanzania though the ports of Dar Moreover, the high level of tariff protection, serves es Salaam or Tanga. to undermine the incentive to make the investments • A warehouse receipt system (WRS) for cashew was required for increasing competitiveness in the medium introduced in 2007 and is now mandatory whereby all and longer term. cashew sales are through auctions managed by the CHAPTER 5: Agriculture: Trade and Regulatory Policies | 51 3. Opportunities for rural poverty reduction are impractical for the agencies to implement. Tanzania’s constrained by unnecessary trade regulations trade procedures, therefore, effectively force many small local entrepreneurs into the informal economy Although there are many factors that help explain why where there are no product controls and problems with rural poverty in Tanzania is proving more stubborn to corruption and harassment easily arise. address than urban poverty, this DTIS update clearly shows that opportunities for agriculture growth are Limited transparency of trade rules is a further prob- constrained by complex and overlapping trade regula- lem for agriculture. Although many regulatory agencies tions. Over the years, Tanzania has created numerous have made good progress in posting information on regulatory agencies and complex trade rules that add their websites, limited transparency of Tanzania’s trade to the cost of doing business, delay farmer access to rules remains an important constraint.5 TBS standards, new types of inputs, and prevent small entrepreneurs for instance, must be purchased from headquarters from competing on equal footing with large companies. even though all standards in agriculture are mandatory Adding to the problem, few (if any) regulatory authori- technical regulations. For its part, the Tanzania Food ties use genuine risk-based approaches to meet their and Drugs Authority (TFDA) now posts many forms objectives and instead aim for 100 percent inspection and guidelines on its website yet traders say these are and certification of all traded consignments. Continued incomplete and very technical, so are difficult to under- reliance on crop marketing boards and consignment- stand. As a staff member of one parastatal marketing based export permits for maize and other strategic com- board put it “it took us more than four months of con- modities along with the ongoing risk of trade bans and stant investigation to find out what is needed to register sudden policy changes further undermines the potential our products and we are a government agency so could for growth by making large and small investments in always get an appointment. Imagine how long it would new technology, forward contracting, and private stor- take an ordinary person to find out what is required.” age risky. Some people met for the DTIS preparation went even further to allege the lack of transparency in all regula- Tanzania’s trade rules are particularly burdensome for tory agencies is a source of corruption since officials small businesses and prevent Tanzanians from sharing can cite an endless number of obscure and difficult to in the country’s own prosperity. Whereas large firms prove rules, even imaginary rules, to charge extra fees and multinational companies generally enjoy economies or elicit bribes for noncompliance. of scale to employ staff to navigate the regulatory envi- ronment, small traders wishing to break into business Minimizing the regulatory burden on agriculture trade do not, so are easily shut out. Although some trade and could therefore be of major economic and social benefit regulatory permits are free, many agencies charges to Tanzania. Minimizing the costs of regulatory compli- fees for their services. Moreover, most permits can only ance in both time and money could not only lead to be obtained from the agency’s headquarters or, occa- higher farm gate prices that incentivize farmers to raise sionally, through a few branch offices. Consignment- crop yields and supply more raw material for process- specific import and export licenses, for instance, are ing, but would directly benefit some of the poorest indi- only issued by the Ministry of Agriculture, Livestock viduals most. Of particular note, many small farmers and Fisheries (MALF) in Dar es Salaam. Although these and small traders are poor women who are likely to be permits are free, small traders in distant locations particularly disadvantaged by burdensome rules and must mail their application or travel several hundred regulations due to low levels of literacy, time constraints kilometers to wait in the city and hope for a favorable due to family commitments, and gender biases in dis- outcome while the application is processed. Similarly, tribution networks. Both simplifying and streamlining the Tanzania Bureau of Standards (TBS) explained that the requirements for domestic and regional agricul- a trader who wishes to export any quantity of grain is ture trade is therefore essential for poverty reduction required to contact the nearest branch office and pay and for small entrepreneurs to grow and prosper. the costs for an inspector to visit the storage site and Organizing small farmers into cooperatives as Tanzania certify the product in person. Such requirements are has done in the past may be seen to overcome the prob- uneconomical for traders with small consignments and lem of high trade costs and poor economies of scale, but TANZANIA DTIS 2017 | 52 does not provide the opportunities local entrepreneurs situation. Regulatory overlap between TBS and TFDA, need to grow and compete on their own. for instance, is a well-known bottleneck whereby each agency maintains separate product registration and The Tanzanian government is working to address these inspection requirements in the name of food safety. bottlenecks and deserves credit for progress made so Dialogue between these agencies has been ongoing far. While many large and small private operators met for some time to agree on the division of responsibility. for the DTIS Update described the regulatory environ- Various MOUs and other agreements between the agen- ment in Tanzania as burdensome, government has made cies have been reached, yet with overlapping legal man- headway in addressing some important constraints. dates such an approach can only go so far and there is Fertilizer regulators, for instance, point to the drafting of now growing recognition that parliamentary interven- new rules in 2011 that eliminate the need for field-testing tion is needed to address the ambiguity and remove the each NPK6 combination. Similarly, Tanzania has made overlap once and for all. good progress in ascribing to regional protocols on seed trade including the Southern Africa Development Greater use of risk-based approaches in all areas of reg- Community (SADC) Harmonized Seed System and har- ulatory management would be an efficient way to ensure monized standards for seed certification of the East consumer safety and good reputation of Tanzania’s African Community (EAC). exports. Most regulatory agencies met during the DTIS Update said they are working to computerize their While these and other reforms are important, there operations and have plans to expand coverage with is still much to be done. While the Tanzania Fertilizer additional inspectors at more borders. Computerization Regulatory Authority (TFRA) states it is implementing and decentralization that brings services closer to users the new 2011 regulations described above, it notes that is important, yet with each agency still aiming for 100 these regulations have not been signed by the minis- percent inspection the current approach is not efficient ter thereby creating uncertainty for the private sector does little to reduce mandatory fees, eliminate institu- over which set of rules to follow. Similarly, the Tanzania tional overlap, alleviate the burden on overstretched Seeds Act of 2003 is not aligned with the regional inspectors and laboratories, or speed border crossing approach to variety release and seed certification. To times for nonrisky goods. Aiming for full coverage is date, seven new varieties of potato seed have been an elusive goal at best and many countries with signifi- allowed into Tanzania after just one season of national cantly more resources to spend on border controls than testing through an agreement with Kenya and Uganda Tanzania have opted instead to utilize risk-based strate- to recognize each other’s test data. Unfortunately, gies as the most effective way to protect consumers and however, this agreement has yet to be put into practice fulfill their regulatory objectives. Risk-based approaches with other major crops including maize, rice, sugar, and to regulatory management therefore not only help to pulses that are much more important to poverty reduc- improve trade competitiveness, but are essential for tion, food security, and overall trade performance. For consumer protection (see box 5.1). these crops, the Tanzania Official Seed Certification Institute (TOSCI) still requires a minimum of two sea- Risk-based approaches could be implemented with little sons of national performance trials before a variety can cost and would be a good way to address the regula- be recommended for acceptance. tory bottlenecks to agriculture trade and rural economic expansion in Tanzania. Consistent with international Elimination of regulatory overlaps may require best practice, a systematic approach to spot inspections Parliamentary intervention. In late 2016, the MALF based on risk profiles of commodity types, places of ori- requested all regulatory agencies dealing in agricul- gin, and even individual traders could make much more ture and food products to submit a list of key functions, effective use of available resources. Such procedures instructions on how to comply, and details of how much would help Tanzania focus its resources to achieve each service costs. According to senior officials, the aim higher levels of protection while lowering the burden of this exercise was to identify areas of overlap to see on small traders and creating new opportunities for what could be streamlined right away and what kinds economic growth and poverty reduction in rural areas. of higher-level action may be required to address the Increased willingness of to accept and use other country CHAPTER 5: Agriculture: Trade and Regulatory Policies | 53 BOX 5.1: Applying Risk Assessment, Risk Management, and Risk Communication Risks may be defined as the potential damage caused by a hazard, of measures aimed at addressing the risks and may include testing, harmful product, or harmful service. Government agencies are inspection, or suppliers’ declaration based on the risk profile of the responsible for ensuring compliance with regulations aimed at product and importer. Risk communication refers to the approaches ensuring agreed levels of health and safety protection. Given to educating and informing producers and consumers of the risks. resource constraints, even in the most developed economies, a Ensuring effective public understanding of the nature of the risks ‘zero-risk’ outcome is not feasible. The challenge for governments and the applied risk management techniques can increase the public and regulatory agencies is to use their scarce technical and physical acceptance of the risk elements. resources to minimize the risk to public health and safety. Regulatory agencies need to allocate their scarce resources Risk assessment, risk management, and risk communication are (laboratories, professional staff) to addressing the most serious important tools for ensuring that regulations are effective and risks. Whether the risk is foregone revenue through tax evasion, efficient. Risk assessment is a key tool for identifying the extent harmful food products, ineffective fertilizer, or mislabeled seeds, of the potential harm (in terms of product safety, sanitary and or environmental damage through toxic pollution, the regulator phytosanitary dangers, revenue loss, environmental damage, and will maximize public safety through applying risk assessment, risk so on). Risk management focuses on the design and implementation management, and risk communication. test data, including private test data for crop inputs and Section 4 which highlights recent trends in the maize, finished commodities would also increase efficiency rice, sugar, cashew, and fisheries agricultural subsec- through saving scarce regulatory resources and lower- tors that are important to Tanzania as staple crops for ing the costs of introducing new and more productive food security and as key exports dominated by small- technologies for agriculture and agro-processing. holders. Finally, section 5 presents the recommended priority actions aimed at addressing the constraints 4. Building capacity for SPS compliance to increase to growing the agricultural sector through increasing regional trade in animal-based products. trade and reducing poverty. Tanzania faces serious institutional challenges in com- Recent Sector Performance plying with SPS measures for livestock and dairy). This limits the opportunities for expanding livestock and The Tanzanian government is committed to encourag- dairy trade. Valuable lessons can be learned from the ing investment in agriculture and agro-industry and response of Tanzania to the European Union (EU) export increasing productivity for jobs and poverty alleviation. ban on Nile perch. With targeted donor support and the The Tanzania Agriculture and Food Security Investment commitment of the government and the private sector Plan (TAFSIP) sets out the framework for prioritizing resources focused on strengthening traceability and investment in agriculture to achieve the goals devel- compliance with mandatory EU requirements for those oped in the Tanzania Development Vision (2025), the firms exporting. This targeted approach on addressing Poverty Reduction Strategy Paper, the National Strategy buyer demand was successful and Tanzania was the for Growth and Reduction of Poverty I and II, and the first East African economy to recommence exporting FYPD II. This is reinforced in the more recent National Nile perch. Agricultural Policy (NAP) of 2013 that commits to developing “an efficient, modern, commercial, competi- Following this overview of main findings, the chapter tive, and profitable agricultural industry.” The recently is organized in four sections. Section 2 looks at recent released ASDP II (2016) details the policies, strategies agricultural sector performance including the important and priority support areas for public and private invest- role played by women in agriculture production and ment aimed at advancing agricultural growth. Since the trade. Section 3 summarizes Tanzania’s agricultural 2005 DTIS, the Tanzanian government has implemented policy and institutional framework with a focus on the a series of reforms aimed at improving the business major trade and regulatory challenges affecting the abil- enabling environment for agriculture to stimulate ity of Tanzanian agriculture to further increase exports investment, enhance productivity and increase links to the region and internationally. This is followed by to agro-processing. TANZANIA DTIS 2017 | 54 To date, the commitment to improving productivity and promoting investment through the overarching agri- BOX 5.2: The Tanzania Agriculture and Food Security cultural programs have focused on improving planning Investment Plan and coordination aimed at strengthening the efficiency The Tanzania Agriculture and Food Security Investment Plan of government parastatals and regulatory bodies. This (TAFSIP) is the 10-year (2011–21) sector-wide investment plan includes the multiple initiatives and programs including aimed at meeting the Comprehensive African Agriculture ASDP II and TAFSIP linked to the Comprehensive African Development Program’s target of 6 percent annual growth in Agriculture Development Program (CAADP). Prior to agricultural sector gross domestic product. The TAFSIP provides the framework for prioritizing investment aimed at driving ASDP II and the NAP, phase I of the ASDP (2006–13) Tanzania’s agricultural development. It represents the financing aimed to improve farmers’ access to knowledge, tech- mechanism and framework for implementing the Agricultural nologies, market systems, and infrastructure, and to Sectors Development Strategy and the Agricultural Strategic Plan increase private investment through improving the pol- for both mainland Tanzania and Zanzibar. The TAFSIP is aligned icy and regulatory framework. The ASDP was relatively with both Vision 2025 (for the mainland) and Vision 2020 (for Zanzibar), it is the key policy and strategic statements including more successful in introducing streamlined planning MKUKUTA/MKUZA, Kilimo Kwanza, and the Agricultural Trans- and coordination through central government and para- formation Initiative. statals than at increasing the role of the private sector. Source: Derived from the TAFSIP (2011). More recent initiatives have continued to try to provide the private sector with a more prominent role, but regulatory reform has been very slow.7 These include The regulatory burden is prohibitive for many small the former President Kikwete’s Kilimo Kwanza8 Resolve holders and small traders—they are unable to comply. and Big Results Now (BRN), the Southern Agricultural Larger farmers and traders are able to comply with Corridor of Tanzania (SAGCOT)-New Partnership for the regulatory requirements and pass on the costs to Africa’s Development (NEPAD) initiative, and the USAID’s consumers. However, for smallholders’ and small trad- Feed the Future. The BRN prioritized three crops—rice, ers’ regulatory compliance eliminates the value added sugar, and maize—and focused on improving agricul- and either discourages economic activity or encourages tural productivity, increasing market efficiencies, and informal trade. strengthening analytics and accountability. The Tanzanian government has identified a wide range While the government’s strategy and policy documents of constraints holding back investment and increasing highlight the importance of increasing agricultural productivity in agriculture,9 which must be addressed production and trade through private investment, for Tanzania to realize the potential and opportunities implementation remains slow. The NAP highlights both for future growth. The government places liberalizing the opportunities for increased intra-regional trade agricultural markets and increasing reliance on “the pri- within the EAC and SADC in food and crops and the vate sector as the engine of growth in crop production, importance of “eliminating intra-regional trade barriers.” processing, and marketing.” Since the 2005 DTIS, the It notes the importance of working towards increased government has implemented major reforms aimed at cooperation in standardization, quality management, reducing the role of commodity boards in marketing and metrology, and testing of agricultural products. The has strengthened government institutions providing out- NAP identifies the importance of agreeing mutually reach and extension services, however, further reforms recognized certification marks along with other methods are required. The following sections look at this chal- of quality conformity assessment that reduces trade lenge in more detail focusing on export licenses, agricul- costs. The NAP illustrates the commitment of the tural tariffs and taxes, regulatory policies governing the Tanzanian government to continue with regulatory availability and prices of agricultural inputs, and the role reforms aimed at creating more efficient agricultural of the TBS and the Tanzania Atomic Energy Authority in markets. However, to date the commitment has not regulating imports and exports of agricultural products. been matched by implementation. Reducing input costs and increasing competitiveness require the Tanzanian Despite regulatory bottlenecks and other constraints, government to simplify and streamline the many Tanzania enjoys a large and growing agriculture regulatory hurdles imposed on all farmers and traders. trade surplus. Since the 2005 DTIS, officially recorded CHAPTER 5: Agriculture: Trade and Regulatory Policies | 55 agriculture exports grew by 138 percent overall and FIGURE 5.1: Tanzania’s Agriculture Trade Balance, 2006–15 by an average of 9 percent per year between 2006 and 1,600 2015 (see figure 5.1). Agriculture imports have also 1,400 grown, yet Tanzania enjoys a much larger agriculture 1,200 US$, millions trade surplus now than at the start of the same period. 1,000 In the years from 2006 to 2008, for instance, recorded 800 agriculture imports equaled 63 percent of recorded 600 400 exports whereas between 2013 and 2015, recorded 200 agriculture imports stood at just 59 percent of recorded 0 exports. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total agricultural imports Total agricultural exports Agriculture accounts for nearly half of Tanzania’s total Source: Derived from United Nations Comtrade data. merchandise exports. Figure 5.2 shows that agricul- ture and fisheries together accounted for 47 percent including reliance on commodity specific export licenses of total recorded merchandise exports between 2006 and multiple registration and inspection requirements, and 2015. From 2007 to 2012, agriculture’s contribu- much of Tanzania’s agriculture production is exported tion to total exports fell by nearly 65 percent, but has through informal channels not captured in official trade since increased and now accounts for about 50 percent records. Maize, for instance, ranks as the 20th most of total exports. While livestock production is focused valuable agriculture export in table 5.1 with an aver- on the domestic market, vegetables and nongrain cash age annual export value of just US$5.3 million over crops are largely destined for export markets, both the period covered. In January 2015, however, the East growing by 75 percent over the ten years to 2014. More Africa Food Security and Nutrition Working Group than 75 percent of total output is produced by small- reports that at least 500,000 tons of maize was exported holders, with average farm sizes ranging between 0.2 from Tanzania to Kenya through informal channels in and 2 hectares depending on the district. 2014.11 Based on a conservative price of US$300 per ton, these exports could easily have been worth more than Tanzania exports a diverse range of agriculture com- US$150 million placing maize as the seventh most valu- modities to buyers around the world. As shown in table able export in 2014 ahead of cotton and on a par with 5.1, Tanzania’s traditional cash crops (tobacco, coffee, ca- legumes and coffee. Similarly, live animals and meat shew, and cotton) along with fishery products continue products do not figure in the top 20 list of recorded to lead the way in agriculture accounting for 52 per- agriculture exports due to challenges of export licensing cent of total recorded agriculture exports from 2006 to and sanitary certification but are known to be important 2015. In addition to these commodities, the country ex- in informal export markets. ports many other products, with sesame, dried legumes, groundnuts, and animal feeds having grown rapidly in Regional markets are particularly important for poverty recent years. India, China, and Japan are the largest ex- reduction. Regional markets in the EAC and other neigh- port markets for higher-value cash crops while regional boring countries are very often served by small traders markets are important for food staples including sugar, rice, oilseeds, and fish. Virtually all cashew nuts are ex- FIGURE 5.2: Agriculture, Share of Merchandise Exports, ported in unprocessed form to India and other countries 2006–15 in Asia where there are processing plants with spare ca- 60 pacity (in 2013, India and Vietnam accounted for 84 and 50 12 percent of cashew imports, respectively.10 China is 40 the destination for more than 80 percent of sesame ex- Percent 30 ports, while coffee is mainly destined for Japan and Italy, 20 followed by Germany, United States, and Belgium. 10 0 Much of Tanzania’s agriculture trade is unrecorded. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Because of various regulatory barriers in Tanzania Source: Derived from United Nations Comtrade data. TANZANIA DTIS 2017 | 56 TABLE 5.1: Tanzania’s Top 20 Agriculture Exports, 2006–15 Total, Share 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006–15 of total Product (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ agriculture description million) million) million) million) million) million) million) million) million) million) million) exports (%) Tobacco 119.9 161.7 154.4 188.6 221.8 326.2 340.7 384.0 424.9 448.0 2,770.4 19.2 Fish/shellfish 187.6 218.0 221.4 168.2 167.6 174.8 172.5 151.5 190.6 156.3 1,808.5 12.5 Coffee 84.2 123.6 120.9 169.5 138.0 221.8 175.8 182.4 167.2 184.8 1,568.2 10.9 Cashew 65.5 56.8 96.3 94.3 146.6 134.5 175.7 188.0 207.2 319.2 1,484.1 10.3 Cotton 101.2 58.7 125.2 112.4 147.0 98.3 159.7 174.8 103.1 35.7 1,116.0 7.7 Sesame 23.7 30.4 53.9 77.0 80.2 88.6 118.7 180.8 241.8 191.1 1,086.1 7.5 Dried legumes 28.9 54.0 77.7 85.5 119.7 82.9 107.1 139.8 165.0 178.3 1,038.9 7.2 Spices 10.5 10.0 18.5 22.2 18.6 94.9 54.2 27.7 64.0 21.3 342.0 2.4 Animal feed 13.0 17.0 20.4 19.8 34.4 27.9 47.2 71.8 53.1 31.8 336.5 2.3 Tea 20.7 17.3 30.3 26.0 27.8 33.3 36.4 37.4 30.9 39.0 299.1 2.1 Cocoa 24.0 12.7 15.8 24.5 32.5 40.9 28.6 19.9 34.5 41.7 275.0 1.9 Edible oils and fat 7.5 10.9 22.9 19.0 24.7 35.1 36.8 22.0 27.0 17.2 223.1 1.5 Cut flowers/foliage 19.1 33.3 29.9 23.2 17.3 17.1 16.1 18.1 17.7 14.6 206.4 1.4 Sugar/sugar prep/honey 23.3 39.9 24.6 12.7 19.2 13.1 16.6 24.7 1.9 1.3 177.2 1.2 Rice 1.5 9.0 8.8 7.0 26.0 22.4 8.0 13.0 17.0 10.5 123.1 0.9 Seed/fruit/spores sowing 3.9 4.2 5.7 7.3 7.2 9.9 12.0 14.4 19.2 18.7 102.6 0.7 Hide/skin/fur, raw 9.5 10.4 10.2 3.4 3.7 10.2 8.9 4.4 4.6 3.2 68.4 0.5 Vegetables, fresh/chilled 6.5 3.8 5.0 4.0 5.1 4.3 5.7 10.1 10.7 9.3 64.6 0.4 Groundnuts 0.2 6.5 10.7 7.0 4.0 3.5 11.2 14.9 11.3 3.6 73.0 0.5 Maize 10.2 13.5 4.6 2.8 1.9 2.5 2.5 8.7 4.1 2.0 53.1 0.4 Total 761.1 892.0 1,057.3 1,074.5 1,243.4 1,442.1 1,534.4 1,688.4 1,795.6 1,727.6 13,216.3 91.5 Total agriculture exports 835.8 999.0 1,160.0 1,186.4 1,349.8 1,656.0 1,639.3 1,824.0 1,935.1 1,865.0 14,451.4 100.0 Share of top 20 exports (% 91.1 89.2 91.1 90.6 32.1 87.1 93.6 92.6 92.8 92.6 91.5 of total agriculture exports) Source: Derived from United Nations Comtrade data. with close links to smallholder farm communities. Many Tanzania’s agriculture is dominated by small-scale of these traders are women who use the revenue from subsistence farmers. Over 80 percent of the arable trade to eke out a basic living for their family. They land is used by smallholder farmers, and only about trade in regional markets because of attractive prices 1.5 million hectares is under medium- and large-scale but are often blocked by Tanzania’s regulatory frame- farming. Smallholders operate on an average of 0.2 to 2 work so face many constraints and higher costs than if hectares of land depending on the district. Much of the there were simple, risk-based systems in place to allow country’s livestock production is from traditional agro- the use normal border channels. With both coffee and pastoralists and around 8 percent of formally recorded cloves, there has been widespread smuggling to mar- fishery exports are of dried and smoked fish produced kets in Uganda and Kenya respectively where prices are by artisanal fishers.13 Smallholders are major growers higher due to simpler and more streamlined regulatory of maize, rice, Robusta coffee, cashew, pulses, and other procedures. A 2010 value chain study of Robusta coffee leading exports. Cash crops including tea, sugarcane, in Kagera, for instance, found that farmers just across Arabica coffee, tobacco, sisal, and some horticultural the border in Rakai, Uganda, were earning consider- crops including cut flowers and fresh vegetables for ably more from coffee than growers in Tanzania and export to Europe are produced by commercial farmers were using the money to invest in new trees and other along with smallholders. productive assets.12 Tanzania meanwhile was working hard to enforce mandatory sales through the TCB sanc- Women play an important role in Tanzania’s agricultur- tioned channels when there was a clear opportunity for al sector. According to the 2014 Integrated Labor Force poverty reduction by providing growers in Kagera legal Survey, Tanzanian women account for almost 52 per- access to this more lucrative foreign market. cent of the total population employed in agriculture: they CHAPTER 5: Agriculture: Trade and Regulatory Policies | 57 typically work as farmers “on own farm” or as “unpaid fruit per year but only 4 percent is processed with the family helpers,” although in this latter role, they largely result that much of the production spoils and goes to outnumber men by a proportion of more than 2:1 (NBS waste. Only around 10 percent of cashew nuts are pro- 2014). In addition, women are heavily involved in agri- cessed domestically, and, despite growing oilseed pro- cultural cross-border trade—evidence shows that they duction, Tanzania still imports most of the processed can represent up to 70–80 percent of the country’s total edible oil it consumes each year. Maize processing holds population of cross-border traders, of whom the majori- the largest share of small entrepreneurs, especially in ty regularly trade in agricultural and livestock products rural areas. Some processing, such as oilseeds and cot- (along with other goods). Low agricultural productivity, ton require large capital, hence, it is mainly dominated poor agro-processing skills, limited availability of ade- by large enterprises. quate machinery and equipment, restricted access to fi- nance, markets and (price) information, high duties or Agricultural productivity remains low despite the po- levies, and cumbersome procedures tend to particularly tential for significant expansion. As in much of Africa, affect women, thus often forcing them into subsistence- increases in the value of agricultural production has pri- level production and informal trade, and preventing marily resulted from increasing the cultivated area and, them from graduating into the formal economy and to a lesser extent, from switching to higher value cash evolving into highly-productive, dynamic, profitable agri- crops. To date, increasing yields have exerted a mar- cultural exporters. ginal impact on aggregate growth. Agricultural pro- ductivity remains low by international standards, while Much of the agricultural produce in Tanzania is export- links to agro-industrial processing also remain mod- ed in raw or unprocessed form,14 and infrastructure est. Low productivity results from many factors in- and logistics constraints also reduces product fresh- cluding trade barriers that delay or limit access to new ness and lowers values. The 2011 TAFSIP prepared as types of inputs, raise the costs of crop production and an activity of the CAADP under the NEPAD identifies in- marketing, and lead to uncertainty over price and basic adequate processing and value-addition facilities as a market access. major constraint to growth.15 A dearth of storage facil- ities and incomplete cold chains prevent farmers and Tanzania’s agriculture imports are dominated by edible distributors from preserving freshness which also rep- oils, wheat, and sugar. As shown in table 5.2, edible oils, resents a foregone value-added opportunity. For in- wheat, and sugar have together accounted for more stance, Tanzania produces around 2.75 million tons of than two-thirds of total agriculture imports between TABLE 5.2: Tanzania’s Top 10 Agriculture Imports, 2006–15 Total, Share 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006–15 of total Product (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ (US$ agriculture description millions) millions) millions) millions) millions) millions) millions) millions) millions) millions) millions) exports (%) Edible oils and fat 228.5 274.3 223.1 130.8 212 319.8 296.5 233 427.1 258.8 2,603.9 28.4 Wheat 120.4 233.5 182 209.3 291.9 404.4 244.1 307.1 319.3 222 2,534.1 27.6 Sugar/sugar prep/honey 41.7 67.4 41.6 57 92.6 126.1 184.1 148 117.5 114.1 990.1 10.8 Maize 51.3 2.3 8.7 8.3 15.7 15.4 39.4 38.4 19.9 30 229.4 2.5 Tobacco 5.6 6.2 8.3 15 2.9 8.7 19 34.2 32 15.2 147.2 1.6 Rice 21.9 5 16.4 11.2 0.5 15.8 11.4 33.7 3 8.9 127.7 1.4 Dairy products and eggs 3.8 4.9 5.5 7.9 8.8 12.3 16.5 14.1 26.7 11 111.4 1.2 Flour or wheat 1 0.3 0.6 17.2 31.1 21.7 0.1 0.4 28.6 2.4 103.6 1.1 Fish/shellfish/etc. 1 2.3 3.9 4 4.6 3.4 3.4 9.4 18.1 17.4 67.6 0.7 Meat and preparations 2.1 0.6 3.3 4.8 4 8.4 7.9 8.5 15 8 62.7 0.7 Total 477.3 596.8 493.3 465.6 664 936.1 822.7 826.7 1,007.4 687.8 6,977.6 76.0 Total agriculture imports 582.3 739.6 692.2 640.4 867.3 1,192.5 1,130.4 1,070.7 1,334.0 928.8 9,178.2 100.0 Share of top 10 imports (% of total agriculture 82 81 71 73 77 78 73 77 76 74 76 imports) Source: Derived from United Nations Comtrade data. TANZANIA DTIS 2017 | 58 2006 and 2015. Wheat is mainly a temperate crop, so is foods as well as limiting exports. Delinking domestic only suited for production in certain locations, mainly on food markets from regional and world markets creates large commercial farms with irrigation capacity. Sugar price volatility and undermines the stated objective of also requires irrigation but is well-suited for production promoting food security. in Tanzania with its tropical and semi-tropical climate. In total, the country consumes about 420,000 tons of sugar The process to obtain export permits remains cumber- per year, whereas domestic production stands at about some and effectively discriminates against smallholder 300,000 tons, leaving a 100,000-ton deficit to be made up farmers and small traders. The MALF is responsible for by imports. The government imposed tight restrictions approving import and export permits. Each exporter on sugar imports in mid-2016 with the aim of encourag- is required to go through the steps outlined in box 5.3. ing local producers to fill the gap. In practice, this process is so cumbersome that it is ignored by most traders who choose to rely on second- Of the leading import categories, oilseeds likely offer the ary markets by paying a fee to the forwarding and clear- best potential for increased participation by smallholder ing agents for a permit. The Tanzanian government has farmers. Sunflower, soybeans, rapeseed, and other oil attempted to streamline the procedures and now allows crops are reasonably straightforward to produce and a trader to apply directly to the MALF, although, actual have good potential for local processing into cooking practices have changed little as regional commission- oil with the cake used as an ingredient in stock feed. ers, and Clearing and Forwarding agents try to maintain As with other commodities that have good potential their rent-seeking behavior. The procedures are par- for import substitution, however, problems in Tanzania ticularly onerous, in many cases prohibitive, as traders with the slow release of new varieties of seed and other inputs makes rapid expansion difficult, and is an area of trade policy that should be addressed. BOX 5.3: Procedures for Obtaining an Export Permit for Staple Foods Agricultural Policy and Institutional 1. The Regional Commissioner Office requires a letter of valida- Framework tion, which must be issued by one designated officer. 2. Traders are then required to obtain a letter of validation from the Tanzania Revenue Authority (TRA), which is used to verify This section is organized in six sections focusing on the the Ministry of Agriculture, Livestock and Fisheries (MALF) requirements for obtaining export licenses, agricultural permit at the border post. tariffs and taxes, agricultural inputs, standards and 3. Traders must obtain the export permit from the MALF in Dar technical regulations, sanitary and phytosanitary mea- es Salaam (not available anywhere else in Tanzania). Only one person in the MALF is authorized to sign permits—delays sures, and the mandatory radiation testing. may occur. Export Licenses Additionally, when exporting any agricultural product, the trader Export licenses are required for all major food crops must show the following documents: (maize, rice, sugar) and are used to monitor and regu- • Business license (issued by the local government authority), late trade in staple foods. The requirement to obtain a • Import or export license (issued by the Ministry of Industry letter authorizing the export of food applies to virtually and Trade), • Tax Clearance certificate (issued by the TRA), every commodity (TANEXA 2012). Government officials • Tanzania Food and Drugs Authority certification of safety of assert that the permit system is intended to promote food and drugs, food security and to monitor the quantity of staple • Mark of Origin (issued by Tanzania Bureau of Standards [TBS]), foods. Food security is monitored through the MUCHALI • Quality Standard Certification (issued by the TBS), system.16 If the assessments indicate that domestic • Phytosanitary Certificate (required for raw agricultural pro- duce issued by the MALF), food availability may be insufficient, this may trigger an • Certificate of Radiation Analysis (issued by the Tanzania Atomic increase in imports and/or a quota on food exports. It Energy Commission). may also result in certain local government districts Source: Derived from information from the Tanzania Exporters Association, the banning or restricting food exports from their locality Tanzania SERA project, and other sources. thereby restricting the domestic movement of staple CHAPTER 5: Agriculture: Trade and Regulatory Policies | 59 in outlying districts have to travel to Dar es Salaam to major hurdle. Furthermore, the license is only issued obtain the permit. Only large traders have the capacity by the Ministry of Trade and Industry in Dar es Salaam. and economies of scale needed to comply with these Given the size of the country, some traders from the requirements leaving local entrepreneurs shut out from north may have to travel over 1,000 kilometers to Dar es business in their own country. Salaam to obtain the license. Only larger traders bother to obtain an export license, smaller traders pay a fee Obtaining the permit represents a challenge and is pro- to the license holder and uses their license to move the hibitive for small- and medium-scale traders. Research goods across the border.17 conducted by the Tanzania Exporters Association found that 61 percent of respondents were negatively These high transaction costs effectively discriminate affected by the export permit issuing process (TANEXA against small-scale traders obtaining an export license. 2012). Food export traders were required to go through While this is undoubtedly onerous, it is not clear how five different steps to obtain a letter of authorization procedures are enforced, which makes the rules (TANEXA 2012; Amin and Stryker 2013). They were unpredictable and nontransparent and creates oppor- required to travel to the district, regional, and to the tunities to elicit illegal payments. The export permit Ministry of Agriculture, Food Security and Cooperatives system has resulted in the trade being dominated by (MAFC) headquarters in Dar es Salaam for various pro- specialized clearing and forwarding agents who have cedures. The permit was issued in Dar es Salaam and the “know how” to obtain all letters of authorization to this process took 2–4 weeks depending on where the export food. They then allow traders to use them to exporter is based (TANEXA 2012). Such procedures have export their foodstuffs for a fee (TANEXA 2012; Amin and a particularly onerous impact on women for whom it is Stryker 2013). even more difficult to travel from their home location than for men and leave many rural Tanzanians trapped Tanzania’s trade procedures result in smallholders in poverty. receiving lower prices for their crops. The additional direct and indirect costs resulting from the export The export permit process should be simplified. In Oc- permit system are effectively added to the marketing tober 2014, the Tanzanian government allowed each re- costs, which are already high in Tanzania.18 Traders gion to issues export permits, however, the process was pass on any additional costs created by the Tanzanian fraught with administrative difficulties and continued to permit system to the farmers. Tanzania exports maize be time consuming so was reversed after a few months. to Kenya, which is a significant importer from both the Currently the permit process remains with the MALF in region and global markets. For Tanzania to export, Dar es Salaam with the objective of increasing efficiency their products must be competitive in the Kenyan and eliminating rent seeking behavior. Under the current market—this limits the ability of the traders to pass on system, traders are required to mail their application or the increased marketing costs. This will shift the burden travel to Dar es Salaam to obtain a permit. Traders are of the higher marketing costs (and any other costs) on also expected to obtain a letter of validation from the to the Tanzanian farmer by offering a lower purchase TRA and the regional commissioner’s office continues to price. The existing permit system effectively reduces require a letter of validation. Each of the steps not only farmers’ living standards and does not contribute to make it difficult for poor individuals to play an active food security. part in their own economy as traders, but also results in higher costs even for large traders, thereby taking away Export regulations also increased the cost of exporting from the prices that can be paid to farmers. for traditional exporters. Box 5.4 outlines how existing regulations impact the export of coffee. All traders are also required to have a general export license. This license is required for all exporters by Agricultural Tariffs and Taxes Tanzanian law, and must be renewed annually for The EAC Common External Tariff (CET) for most agri- approximately US$300. For small traders who wish cultural inputs is zero, while agricultural crops, which to export goods to neighboring countries, this can be are produced in Tanzania, have been protected. Cane or a sizeable share of annual turnover and represents a beet sugar and chemically pure sucrose in solid form TANZANIA DTIS 2017 | 60 TABLE 5.3: Tanzania’s Agriculture Common External Tariff BOX 5.4: Limitations on Export Marketing: The Example Product Common external tariff of Coffee Milk (powder or solid) 60 The Tanzania Coffee Board (TCB) is responsible for regulating the Cashew nuts 25 sector and for managing the export market auctions. In principle, Coffee 25 farmer groups may sell directly to external buyers, however, they Tea 25 are required to obtain an export permit, which is issued by the Maize (corn seed) 25 TCB. The export permit is issued after the TCB have verified the Rice or paddy (in the husk) 75 quality of the coffee (must be classified as premium grade) and Raw cane sugar 35 the offer price should be above the auction price. Farmers who Sugar (and sugar for industrial use) 100 bypass the TCB marketing are still required to pay “voluntary” deductions to the Coffee Development Fund (CDF) for farmer Tobacco 25 development and coffee research, and the district levy (which Fertilizer 0 ranges from 0–5 percent, according to district). Buyers are also Cotton 0 responsible for paying US$0.1 per kilogram to the CDF. Direct Cotton (sewing thread) 25 exporters are required to pay an additional Export Permit Fee of Agricultural machinery 0 US$5 per ton. Obtaining the export permit takes approximately Tractors 0 seven days. Source: Derived from World Integrated Trade Solution. The TCB is responsible for issuing 14 different licenses, includ- ing approved export warehouses and coffee curing plants. The marketing regulations result in the Tanzanian farmer receiving a sectors serves to discourage agro-industrial expansion lower price relative to the price in neighboring Uganda. There is and diversification by increasing the input costs, considerable evidence that Tanzanian farmers export coffee unof- although this is mitigated by the EAC and SADC ficially to Uganda. Currently, Tanzania is allocating scarce gov- preferences whereby many inputs and agricultural ernment resources aimed at reducing unofficial coffee exports rather than streamlining its own marketing system and allocating commodities, including maize, rice, and others, can be resources to improving productivity in the coffee sector. imported duty free. The EAC aims to simplify cross-border trade for small traders through adopting the Simplified Trade Regime attract a CET of 35 to 100 percent. Importation of sugar (STR). The STR may be utilized by all traders crossing for industrial use attracts 100 percent CET to encourage borders with less than US$2,000 of goods. This has use of locally or EAC-produced sugar for industrial use. the potential to significantly benefit many small cross- Rice attracts a CET of 75 percent and dairy 60 percent. border traders, however, surveys indicate a very low The dependence on high tariffs to promote priority agri- utilization rate. Box 5.5 provides more detail. It is rec- cultural sectors does not encourage increased competi- ommended that the border agencies (TRA and others) tiveness. Protecting local markets creates a bias against publicize the STR. competing in export markets and does not encourage productivity enhancing investments. Export Taxes on Agricultural Products Export taxes are levied on a very small number of The CET for imported palm oil is low to meet domestic products with the aim of encouraging their use in down- demand since both local production and production stream processing in domestic industries. Export taxes throughout the EAC remains low. However, imported are levied on raw hides and skins at 60 percent of the rice is charged 75 percent to protect local producers free on board (FOB) value or T Sh 600 per kilogram, from the competition of efficient producers in Pakistan, whichever is higher, and raw cashew nuts are taxed at Vietnam, and so on. Similarly, imported processed maize 10 percent of the FOB value or US$160 per ton, which- flour is charged at 25 percent to promote and protect ever is higher. the milling industry in the EAC. The dairy industry is protected with a high tariff of 60 percent. Products in District Cess Taxes which Tanzania has a comparative advantage, such as Local government authorities (LGAs) levy a tax on agri- cashew nuts, coffee, tea, and tobacco, all have a tariff cultural products shipped from their area. This levy, of 25 percent. Imposing tariffs on these competitive known as a cess, is collected on all bags that are moved, CHAPTER 5: Agriculture: Trade and Regulatory Policies | 61 BOX 5.5: The EAC Simplified Trade Regime When the East African Community (EAC) Customs Union Protocol and livestock products, awareness on the benefits of the regime tend entered into effect, internal tariffs and import duties on EAC-origi- to be low among intended beneficiaries. Enforcement by border offi- nated goods were eliminated in partner states. Whilst the provision cials can also be intermittent and problematic. offers clear opportunities for boosting Tanzania’s intra-EAC trade, including in agricultural and livestock products, fulfilling the condi- For instance, a series of field surveys conducted by the Eastern Afri- tions to benefit from such preferential treatment can be challenging can Sub-Regional Support Initiative for the Advancement of Women for smallholder farmers and small-scale agricultural traders, espe- in 2012 with women cross-border traders at selected EAC borders, cially women—particularly in relationship to meeting the EAC rules including Mutukula (Tanzania and Uganda) and Namanga (Tanzania of origin, producing a valid single-entry document and, where neces- and Kenya), showed that more than half (and sometimes up to three sary, paying for the services of a clearing agent. quarters) of survey participants were not aware of the STR, or the preferential treatment available under the EAC Customs Union. More In response to those challenges, and with the aim of facilitating the than 80 percent of women at Mutukula indicated they were still being intra-EAC movement of goods often traded at small-scale level, a charged duty by customs officers. Simplified Trade Regime (STR) has been introduced as part of the EAC Customs Union. The scheme provides for a simplified clearance While lack of awareness tends to be high among small-scale traders, procedure for consignments (a) that originated within the EAC, (b) and can induce them to avoid the formal border and use bush cross- of commercial value not more than US$2,000, and (c) included in an ing routes even for goods that would not attract duties, officials can official list of eligible products (of which most are agricultural and also exhibit poor knowledge of existing trade regimes—or, in some livestock commodities). Farmers and traders who meet those basic cases, deliberately refuse to apply them to extort illicit payments requirements are entitled to clear their goods free of import duties from traders. Extensive sensitization among both traders and offi- through the EAC Simplified Certificate of Origin. This, in turn, is a sim- cials, and regular monitoring of the enforcement of trade facilitation plified version of the single-entry document, typically issued by cus- measures on the ground, becomes, therefore, of paramount impor- toms authorities at the border, which should be simple enough for any tance to fully exploit the export and growth opportunities available small-scale trader to fill without the assistance of a clearing agent. within the EAC, including for small-scale agricultural traders, espe- cially women. While the aim of the STR is noble, and is likely to have contributed to increasing small-scale trade within the EAC, including in agricultural regardless of whether the maize is sold or transported from the area. If a farmer or trader moves the maize BOX 5.6: Local Taxes and Levies: The Case of Maize in from one town to another, they must pay the tax on each Southern Tanzania bag. If the maize is moved to another region in Tanzania, Local traders in the Kasanga area are required to pay a tax the tax doubles to around US$1.50 per bag (see box on “moving” maize, which discourages trade with Zambia. The 5.6). In practice, many farmers seek to evade the cess, district government in Mtai levies a tax (US$0.70 per bag) on and, with limited enforcement capacity, evasion is wide- local traders for moving maize for all purposes. The levy is spread. Widespread evasion also encourages corruption collected on all bags regardless of whether the maize is sold or transported from the area. If a farmer or trader moves maize with officials extorting payments from farmers in return from one town to another, they must pay the tax on each bag. If for “looking the other way.” the maize is moved to another region in Tanzania, the tax doubles to around US$1.50 per bag. When they take several bags to sell Cess taxes represent a major source of income for and do not sell everything they must camp overnight or pay the moving tax again to take the crop back to their farm. Each time LGAs. Nyange and Tschirley (2014) found that twelve they return to the market to sell the maize they are taxed. This LGAs rely on produce cess for more than 50 percent of adds to the urgency of a quick sale thereby depressing prices for their own local revenue. Their reduction or removal is already poor farmers. One trader reported paying the moving tax likely to directly impact their ability to deliver services three times per bag until he finally sold the product for a loss. to their constituencies. The Tanzanian government has committed to removing the cess, however, in the short run, this is unlikely because most districts depend on digital and mobile payments. The government could the revenue from the cess for their social services. In also improve efficiency by introducing a uniform cess the short run, the Tanzanian government’s reforms for each LGA. This will eliminate market distortions focus on increasing collection efficiency through utilizing between districts. TANZANIA DTIS 2017 | 62 Agricultural Inputs—Regulatory Environment seed companies maintain their own varieties, breeder Tanzania’s competitiveness in agriculture trade starts material produced by the ASA is widely used by smaller with the farmers’ access to productive inputs, including domestic companies. Firms say that the quality of the seeds, fertilizers, pesticides, and farm machineries. As in ASA foundation material is usually good, but sometimes other areas of the economy, regulations governing trade complain that the supply is not regular, making it in agricultural inputs in Tanzania are cumbersome. difficult to plan business operations. According to the These procedures slow farmers’ access to new varieties Tanzania Seed Trade Association (TASTA), another of seeds and agrichemicals help raise productivity. important issue is that the ASA has so far declined Although testing procedures for fertilizer have now to grant individual companies exclusive rights to the been eased, until recently, every single combination of varieties it maintains. In TASTA’s view, exclusivity is NPK fertilizer and supplemental micronutrient required needed for successful commercialization of public a minimum of three years of domestic field trials at verities—first, so the firm has a reason to invest in multiple test sites before it could be sold to farmers, marketing the variety, and, second, so there is a strong although the nutrients required by the crops is a well- incentive to ensure multiplication is done correctly. This understood area of agriculture science and it is not argument makes good sense. The International Maize necessary to test whether different combinations of and Wheat Improvement Center has awarded exclusive nutrients will be effective in Tanzania or in any other rights in Tanzania for some of its varieties, and TASTA country. There is also little need to test new varieties has been calling on the ASA to do the same since 2011. of seeds or agrichemicals that are already known good performers in neighboring countries and have Most private seed companies are focused on the scientific data from these and other places to show how production and marketing of maize hybrids. Not only they would perform in Tanzania. After much dialogue, is maize the most widely grown crop in Tanzania, but Tanzania, Kenya, and Uganda agreed in the early 2000s because maize hybrids are ill-suited to recycling, seed to accept new varieties of seeds approved in any one of companies dealing in this product are more likely to the other two countries after one season of domestic enjoy a steady flow of repeat customers compared field trials, but so far, only seven varieties of potato have with other crops and varieties. For maize, therefore, been registered in Tanzania through this arrangement. TASTA is generally bullish and reports much higher adoption rates of hybrids and open-pollinated varieties Seeds (OPVs) now than in the early 2000s. According to Tanzania has made good progress in allowing sector experts, the entire national market for improved private sector participation in seed trade. Compared maize seed, including hybrids and OPVs, is around with many African countries where restrictions on 8,000 tons now, against just 1,000 tons in early 2000s. variety ownership and multiplication remain in place, Nevertheless, to put this in perspective, 8,000 tons of Tanzania allows the private sector to participate in improved-maize seed is only enough to plant about seed production and marketing. Approximately 25 320,000 hectares, which is less than 8 percent of the percent of seeds were provided by the formal sector 4.2 million total hectares given to this crop each year. in 2013.19 The Seed Act (2003) allows qualified private Most farmers therefore have no choice other than to firms to produce, import, and sell registered varieties rely on self-saved seed or uncertified seed bought of seeds in Tanzania and there are now several large in local markets. Commercial seed sales may have and small seed companies operating in the country. grown overall, but distribution networks are thin and Through the Seed Act, private firms are permitted to patchy outside the major production centers. For other maintain their own varieties, thereby leaving the state- important smallholder crops, including rice, oilseeds, operated Agriculture Seed Agency (ASA) to provide pulses, and legumes, adoption rates remain very low breeder material for public varieties including varieties in all areas, with few new varieties or other kinds of developed by national and international research improved seed available anywhere in the country. institutes. Despite the strategic importance of improved seed, the Many small seed companies rely on foundation government continues to levy value-added tax (VAT) material produced by ASA. While large international on this input while some district authorities charge CHAPTER 5: Agriculture: Trade and Regulatory Policies | 63 cess. These taxes persist despite recommendations by Cumbersome procedures for introducing a new variety the President’s Office Regional Administration, Local introduction are another important constraint to the Government (PORALG) and private sector for seeds seed sector and agriculture growth and poverty reduc- to be exempted from tax. The MALF and the TASTA tion, more generally. As explained by the TOSCI, testing developed recommendations for improved tax treatment and registration of a new variety of seed requires a of seeds and seed packaging materials that were minimum of five seasons testing, including two seasons presented to the Ministry of Finance in April 2014. These of farmer preference trials, two seasons of “DUS” test- recommendations were: (1) to exempt all types of seed ing to ensure the variety is distinct (D), uniform (U), packaging material including jute bags, plastic bags, and stable (S), and one season of national performance and paper bags from VAT, import duties, and excise tests. The rules vary for different species of plants, but taxes; (2) to exempt seeds from local crop produce cess; each set of trials must normally be conducted in four to and (3) to make seeds VAT exempt because of being five distinct locations under the supervision of autho- an agricultural input. These recommendations were rized seed scientists. Once all the tests are complete, a not implemented. The office of the Prime Minister and technical committee must meet to study the results and the PORALG issued a circular to all local government make a recommendation to the National Variety Release authorities to exempt seeds from crop cess, yet, at Committee (NVRC) whether to approve the variety. The the time of data collection, several district authorities technical committee and the NVRC are expected to were continuing to levy cess. Moreover, the proposal meet twice a year, but this is not always possible due to remove VAT and cess on seed packaging materials to a shortage of funds, which delays the release of new was not approved in the 2016 finance bill. Hence, VAT varieties. Multiplying the seed for commercial sale can at 18 percent continues to be levied on seeds and only begin after the NVRC has formally approved the seed packaging materials. Packaging materials are registration. Depending on the crop, multiplication can also subject to an excise duty of 50 percent. Whereas, take a further three to four seasons before the variety is some district authorities do not charge cess on seed available to farmers. packaging materials, others charge 3–5 percent cess. The variety release process could be streamlined and Seed companies have also complained about the this would contribute to increasing farmer incomes. structure of costs for seed labels. All commercially Apart from the requirement for farmer preference tri- marketed seeds in Tanzania are required to bear als, which is somewhat unusual and slows the process an official label issued by the TOSCI. The seed firms by two seasons, the requirements for DUS testing and maintain this has helped to combat the problem of national performance trials are comparable to those in counterfeit seeds and have welcomed recent reductions many other countries. Many other countries, particu- in the price of the seed label, however, they also larly in Africa, however, also have problems with slow identified an important problem in that that there is no access to new varieties, and the fact that other countries distinction in the price of labels for hybrid seeds (where also require many tests does not necessarily make this the marketing margins are large) and OPV seeds (where the best solution for Tanzania. While it is reasonable the margins are thin). The TASTA and others identified to accept that governments have a responsibility to the label requirements as a disincentive to produce and ensure the verities of seed sold to farmers are known market OPVs despite the strategic benefit of these seeds good performers, this condition can be satisfied through to poor farmers, who can neither afford to buy new other more streamlined procedures. The United States, seeds each year nor the fertilizer needed to make the for instance, does not require registration trials and, expenditure on hybrids worthwhile. Furthermore, the in South Africa, variety registration is automatic after TASTA explained that the price of a seed label is fixed only one season of DUS tests. Another good example is regardless of the size of the seed pack, which increases Turkey, which relaxed controls on variety registration in the costs disproportionately for farmers who buy seeds 1982 by deciding to accept test results from private seed in small quantities. According to the TASTA, the labeling companies. Within five years, the cumulative number of policy has so far only been enforced for maize seeds maize hybrids available to farmers increased four-fold even though all seed types of seeds are meant to bear and, by 1992, average per hectare maize yields were an official TOSCI label. 1.4 tons above prereform trends, adding an estimated TANZANIA DTIS 2017 | 64 US$97 million per year to agriculture value added with developing advanced labs to enable seed exports, (Gisselquist and Pray 1999). Similarly, in Bangladesh, investing in systems that support even basic improve- automatic acceptance of new verities from India helped ments to domestic seed supply is arguably more impor- raise average maize yields from less than one ton per tant for a country with low productivity and occasional hectare in 1991 before the reforms to more than six tons food security concerns. Beyond the problem of limited per hectare from 2010 thereby adding an estimated $125 funds to pay for meetings of the National Performance million per year to farmer incomes (Harun-Ar-Rashid, Trial Technical Committee and the NVRC, as discussed 2012). Tanzania has the potential to reap substantial earlier, resources for inspection of seed plots required gains in productivity and farmer incomes from stream- by Tanzania’s own seed legislation and regional harmo- lining its variety release procedures. nization agreements is extremely limited. In the Arusha zone, which is a major area for seed production, there Tanzania has been working towards the adoption of are just four seed inspectors, five junior inspectors, and regionally harmonized seed rules aimed at improving one vehicle. Full certification of maize seed requires the seed trade. Since at least the late 1980s, Tanzania the seed plot to be visited at least three times at very has participated in several regional initiatives aimed specific and narrow stages in the growing season so is at harmonizing the procedures for variety release extremely challenging under the best of circumstances. and seed certification. These include efforts launched Even in the EU, this is only made practical by allowing through the Association for Strengthening Agricultural private inspectors to work under official supervision. In Research in Eastern and Central Africa, the EAC, Tanzania, such provisions do not exist. On top of their and the SADC. Despite good progress in agreeing on field inspection duties, Tanzanian seed inspectors are regional standards for variety testing and certification, also meant to undertake market surveillance work to and for the establishment of regional variety catalogs prevent counterfeit seeds from being sold to farmers. and regional seed certificates, implementation of these Both the TASTA and the TOSCI reported this to be a agreements has been slow to take off. At least as early widespread problem in Tanzania. as 2009, Tanzania agreed with Kenya and Uganda to accept new varieties registered in either one of these As in other areas of trade policy, achieving meaning- two countries after just one season of domestic trials. ful improvement in seed supply requires greater use To date, however, only seven varieties of potato seed of simple, risk-based approaches to regulation and have been accepted in Tanzania through this arrange- enforcement. Adopting simplified procedures for known ment.20 Varieties of other major crops including maize, good performing varieties from neighboring countries groundnuts, rice, sorghum, pigeon peas, and others, would be an effective way of accelerating farmer access continue to be put through the full set of farmer prefer- to improved technology. Another approach would be ence trials, DUS tests, and national performance tests to allow private companies to certify their own seeds even when the variety is a known good performer in a for domestic sale.22 Tanzania could also make wider neighboring country.21 Harmonization of trade rules is use of other less time consuming and resource inten- by nature a slow process, not only because of depend- sive requirements for seed certification such as the ing on regional neighbors to reform, but also because of Quality Declared Seed (QDS) standards developed by having to build new systems to implement the regional FAO. Tanzania already permits village seed groups to standards and amend domestic legislation to conform to produce and sell QDS in local markets. QDS is still pro- regional agreements. duced according to set standards, but demands fewer inspections, thus making this system a practical way to Limited capacity to implement advanced seed stan- alleviate pressure on the TOSCI while still achieving an dards constrains agricultural productivity. Despite acceptable level of quality assurance. Current regula- Tanzania’s national seed lab being a nonaccredited tions in Tanzania, however, only allow QDS to be sold in member of the International Seed Testing Association the immediate farm area. The SADC seed regulations, for many years, and recent upgrades aimed at achiev- which Tanzania has ascribed to, allow for international ing full international accreditation to facilitate seed trade of QDS for both emergency and commercial pur- exports, limited capacity to monitor quality in domestic poses, but Tanzania regulations do not. According to markets remains an important constraint. Compared the TOSCI, the purpose of QDS in Tanzania is to improve CHAPTER 5: Agriculture: Trade and Regulatory Policies | 65 seed trade at the village level only and not on a wider Most fertilizers are imported. Currently, there are 20 scale. If QDS is truthfully labeled as QDS, however, importers. The three dominant importers are Yara, farmers know what they are getting no matter whether Export Trading Group, and Premium Agro-Chem, which they buy the seed in a village, district, or even national together account for more than 70 percent of total fertil- or international market, and it is a more reliable choice izer imports to Tanzania. Urea, diammonium phosphate than buying seed from unknown sources without any (DAP), and NPK granular compounds account for 84 labeling or certification. Allowing QDS to be more widely percent of all fertilizer products used in the country available would also permit village seed producer (IFDC 2012). Local production at the Minjingu phosphate groups the opportunity to grow their enterprise into deposit, southwest of Arusha, is modest, but sustains larger seed businesses thereby creating a possible the manufacture of organic hyper-phosphate for the route out of poverty for rural Tanzanians. domestic and local market. There are no economically viable deposits of potassium in Tanzania. Fertilizer Fertilizer use in Tanzania remains low at approximately In May 2016, Tanzania announced plans to build a US$3- 9 kilograms per hectare. To put this in context, the billion fertilizer factory in partnership with private annual nutrient depletion rate of soil nutrients was investors. According to a statement from the President’s estimated at 41 kilograms per hectare for nitrogen, 4 Office, “the factory will use natural gas to manufacture kilograms per hectare for phosphorus, and 31 kilograms fertilizer and will be built in joint venture with a group per hectare for potassium (MALF 2007). Although 9 of investors from Germany, Denmark, and Pakistan” kilograms per hectare is a substantial improvement (Ng’wanakilala 2016). According to the statement, the from the average of 5.5 kilogram per hectare from plant will be built in southern Tanzania near big off- 2005–09 (IFDC 2012), it is far below the level required shore gas finds and is expected to be commissioned in to maintain soil fertility.23 Less than 7 percent of 2020. Natural gas is one of the hydrocarbon sources the planted area uses inorganic fertilizer and much of Ammonia, a key ingredient of nitrogenous fertilizer. remains to be done to encourage use of this important The official statement notes that, once built, the plant input. The low use of fertilizer is frequently explained would become the largest in Africa with the capacity of as resulting from a combination of high prices and producing 3,800 tons of ammonium nitrate per day while supply constraints. employing up to 5,000. The introduction of subsidized inputs in fiscal 2010 FIGURE 5.3: Fertilizer Use in Tanzania, 2005–14 increased fertilizer use. As shown in figure 5.3, fertil- izer use in Tanzania has risen significantly since the 350 2005 DTIS was prepared but has been volatile with large annual swings, particularly in recent years. About 300 80 percent of the fertilizer in Tanzania is used to grow maize, tobacco, and rice. Traditional export crops, such 250 as cotton, tea, tobacco, and coffee, also use fertilizer. In large part, the upsurge in fertilizer use from 2009 Tons, thousand 200 can be attributed to the introduction of the National Agricultural Input Voucher Scheme (NAIVS). The NAIVS 150 aimed to increase maize yields, crop diversification, and food security to households. Eligibility is restricted to farmers registered as a farmers’ organization. In 2014, 100 the NAIVS was modified to become the Electronic Smart Subsidies in Agriculture (ESSA), which enables farmers 50 to acquire specific inputs to the value of the e-voucher at approximately half the market price. The reentry of pri- 0 vate sector suppliers (for example, Yara) has contributed 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 to ensuring quality fertilizer is readily available. Source: Derived from FAOStat (accessed April 20, 2017). TANZANIA DTIS 2017 | 66 To be profitable at such a large scale, Tanzania must that sulfur is beneficial to crop growth and is commonly develop regional and other export markets. With an added to urea in other countries. expected production capacity of 3,800 tons per day, total production at the new plant would be nearly The unfavorable regulatory environment increases seven times more than total national consumption of total costs. Fertilizer importers in Tanzania face very all fertilizer types at present. Although there is good demanding standards that raise prices unnecessarily potential (and much need) to grow the domestic market and make trade with regional neighbors difficult. These for fertilizer, recovery of the US$3 billion investment requirements limit competition and make it difficult for requires steady production and steady sales at far new entrants to come into the market. There are no higher levels than Tanzania can realistically sustain. harmonized standards for fertilizer in the EAC, and, in Presently, however, Tanzania’s own fertilizer standards at least two important areas, Tanzania’s own fertilizer are not aligned with global standards or standards in standards are more demanding than standards in other neighboring EAC countries. Fertilizer manufacturers EAC countries and even more demanding than global and blenders in Kenya and Uganda have alleged that fertilizer standards. these differences are used by Tanzania for protectionist purposes. With such perceptions, EAC countries and Unnecessarily demanding mandatory standards others may naturally resist opening their markets increases costs. The technical regulations governing to exports from Tanzania at a time when market moisture content are a good example. The international development and regional integration should be a high standard for moisture in fertilizer is around 1.5 percent strategic priority. depending on the product, but in Tanzania the moisture limit is pegged at 1 percent for all products. Authorities Although progress has been made in simplifying trade at the TFRA say this is because Dar es Salaam is humid procedures, registration requirements still limit private so it is necessary to have very low moisture content competition and product choice. All types of fertilizer at the time of import. Many other countries and port in Tanzania are required to be registered by the TFRA. cities around the world, however, also have a hot Until recently, product registration by each importer, humid climate and use the global standard. Private including every new combination of NPK, required three operators say that caking (the main risk of moisture seasons of domestic field trials at a cost of US$10,000 in fertilizer) does not happen until moisture is well per season. This policy effectively blocked custom above 1.5 percent. Moreover, importers say the best blending of fertilizer based on soil analysis (that is, way to comply with Tanzania’s demanding requirement “precision farming”), and forced one regional firm that is to import product in prepacked bags since humidity hoped to develop this business model in Tanzania out of can easily drift above 1 percent if offloaded in bulk. the market. Testing requirements have since been eased Prepacked fertilizer is more expensive to ship and through new regulations drafted in 2011 whereby only more difficult to handle than bulk fertilizer. From “new products” (described by the TFRA to mean organic this perspective, Tanzania’s own trade requirements fertilizer and foliar fertilizers, though others have cited contribute to increasing total costs.24 different definitions) require three seasons of field tests and can be reduced to just one season if the product Tanzania’s standards on heavy metal contamination are has been registered in another EAC country. While this also inconsistent with global practice. Cadmium, for is a significant improvement on the old system, and instance, is commonly found in DAP fertilizer for which TFRA says it is implementing the new regulations, the the international standard is set at a limit of 20 parts TFRA also notes that the minister has yet to sign the per million. In Tanzania, however, the limit is fixed at just 2011 regulations into legal effect. This situation causes 7 parts per million. The TFRA informed the DTIS team considerable uncertainty for private operators who that Tanzania has adopted international standards for rightly question which set of rules to follow. Even under heavy metal contamination yet private importers were the new guidelines for reduced testing, one large firm adamant this is not the case and pointed to the case said that when it proposed to import with added sulfur it of cadmium as one clear example. Like the standard was required to submit the product for field trials even for moisture, Tanzania’s more restrictive heavy metal though there is abundant scientific evidence to show limits is another cause of high prices. To meet the local CHAPTER 5: Agriculture: Trade and Regulatory Policies | 67 requirement, firms must place special orders for DAP procedures will attract large minimum fines and other for Tanzania’s strict specification and test it to a much heavy penalties. Based on the tendered price, estimated higher standard than for most other markets around the transport costs, and allowed markup, the Fertilizer Bulk world. Procurement Authority and the TFRA will set maximum wholesale and retail prices at different locations in Tanzania’s tight standards discourage local blending—an the country.25 effective strategy keeping fertilizer prices down. Most fertilizers contain less than 45 percent active ingredient The BPS will introduce new business risks which could with the rest being inert filler. Not all filler is “optional” have a negative impact on fertilizer supply. Rather than because of how elemental N, P, and K exist in their natu- achieve cost savings to bring prices down, the new ral state, but maybe 10–30 percent inert filler could be system creates many business risks and could lead added locally through domestic blending. This is impor- some firms to curtail rural distribution resulting in more tant since inland transportation easily accounts for limited availability, less choice, and higher prices to 40–60 percent of the retail price of fertilizer and 10–30 farmers. Especially that the new policy was announced percent of this cost could be saved by blending prod- abruptly and with little consultation, there is a high risk uct around the country using local clay and other inert of disrupting existing supply networks and increas- material as filler. In the United States, nearly all fertilizer ing food insecurity. Private competition is critical for is made this way. Unfortunately, with almost zero toler- a fertilizer market to be efficient, yet BPS favors large ance for any kind of nutrient defect or foreign material firms and imposes heavy penalties that are likely to contamination, domestic blending is not a practical busi- discourage small enterprises from participating in this ness model for Tanzania. business. Prepaying for pooled imports far in advance also carries a huge financial risk that is made worse by As the DTIS was being finalized, new plans for a bulk heavy penalties for noncompliance. Unlike petroleum, procurement system (BPS) were announced. With the fertilizer demand is seasonal and can change abruptly stated objective of achieving improved economies of depending weather patterns. scale at the import stage to save costs, new regulations for the bulk procurement of fertilizer were announced Policy priority should focus on addressing constraints on February 10, 2017, and published in the Government that increase costs of importing and distributing Gazette on February 17, 2017. Private sector operators fertilizer. Large firms already import fertilizer in large say there was little or no consultation before the BPS consignments, which limits the scope for further price was announced and that the system is likely to stifle reductions through centralized (bulk) procurement. competition and have very negative impact on the fer- At the same time, and as noted earlier, there are tilizer businesses. The government has asserted that many regulatory factors in Tanzania that discourage the prices charged by private sector are “too high” and competition and lead to high costs. These include claim the BPS will help improve transparency and keep tighter tolerance limits on moisture content, nutrient prices down. defect, and heavy metal contamination. These are all examples of regulations that directly lead to higher The BPS is modeled on the system for importing prices. These regulations raise import prices and petroleum to Tanzania. Under the BPS, prequalified also discourage domestic blending, which in turn firms will submit tender proposals to import the entire prevents significant savings on transport costs from national supply of selected fertilizer products based being realized. With transport accounting for 40–60 on the pooled demand of all distributors and agro- percent of the price of fertilizer delivered to the farm dealers. The chosen importer for each product will be this is a significant cost. The current regulations risk selected by a tender committee. Potential importers, making AN and other fertilizer exports from Tanzania distributors, and agro-dealers must meet the set criteria uncompetitive. Addressing the underlying causes of high to participate in the system. Distributors are required prices promises to effectively reduce prices, which will to mobilize finance to pay the importer for their share improve availability, increase total nutrient use, augment of the consignment in advance. Failure to pay the productivity, and raise rural incomes across a wider importer on time or to comply with other prescribed range of small and low-income farmers. TANZANIA DTIS 2017 | 68 Agrichemicals examine the product and draw samples for analysis The procedures for registering new kinds of agrichemi- by the TPRI lab in Arusha. While the product is being cals is unnecessarily cumbersome. Insecticides, herbi- analyzed, the importer must hold the cargo in a bonded cides, fungicides, and other chemicals are widely used warehouse to ensure it is not sold to the public before by the horticulture industry and other major crops analysis is complete. including tobacco and cotton. Chemicals are not widely used in maize production in Tanzania but are used dur- There are onerous procedures for product registra- ing storage to prevent insect infestation. The Tanzania tion and border approvals and testing, but limited atten- Pesticide Research Institute (TPRI) is responsible for tion and resources allocated to market surveillance. approving all types of agrichemicals. To be registered, Like seed and fertilizer, counterfeiting and adulteration the TPRI performs multiyear and multilocational field of agrichemicals can happen at any stage in the supply trials that last from one to three full calendar years, chain before the product reaches the end user. Accord- depending on the product. These tests aim to determine ing to the TPRI, there are eight authorized inspectors to whether the product performs according to the manu- cover the entire country who travel on a seasonal basis. facturer’s specification. Only domestic test data supplied The last prosecution for selling counterfeit products by the TPRI may be used to make this evaluation. Even if was in 2011. To improve inspection capacity, the TPRI the product is a known good performer in another coun- told the DTIS team that they had asked the MALF to try with a similar climate, it must be tested domestically allow all TPRI scientists (many of whom spend consid- by the TPRI. erable time in the field with spare days during registra- tion trials) to be allowed to perform market surveillance Approval of test results can be a lengthy process. Once work. This proposal, it seems, was never answered. all field trials are complete and the data have been analyzed, a technical report is sent to the Pesticide There are many practical and low-cost opportunities to Approval and Registration Technical Subcommittee improve farmer access to agrichemicals, enhance qual- (PARTS) for review. Based on the outcome of this review, ity control, and reduce prices. Like seed, Tanzania could the PARTS submits a recommendation to the National expedite the acceptance of new agrichemicals with Plant Protection Advisory Committee (NPPAC) on little risk or danger by accepting international test data. whether the product should be registered and granted There is little reason to perform field trials on every admission to Tanzania. The NPPAC makes the final deci- new product when the product is widely used elsewhere sion on registration. Both committees are meant to meet and scientific data from credible sources already exist twice a year but the TPRI says this is not always pos- to show whether it is safe and effective. Redirecting sible due to a shortage of funds. Money for product reg- resources that are currently used for repetitive and istration is paid by the applicant, but these proceeds go largely unnecessary field trials to more productive pur- to the general government account and not to the TPRI. poses, such as market surveillance work, could also be There is also, on occasion, insufficient funding for field highly beneficial with significant impact on farmer confi- trials, which lengthens the testing and registration pro- dence and willingness to invest in these products. cess. Test data are not shared with the registrant who is eventually provided a letter from the NPPAC that only Agricultural Spare Parts, Equipment, and Machinery states whether the product was accepted or rejected. Many key agricultural inputs do not benefit from the blanket exemption from VAT. The Finance Act 2012 Once a product is approved, import procedures are waived VAT on irrigation equipment, tractors, farm demanding and expensive. Importing a registered implements (including spare parts), and milk processing agrichemical to Tanzania requires the importer to products. However, the waiver was inadequately com- declare how much product they expect to bring in over municated and implemented by the TRA. The VAT Act a six-month period and to obtain an import permit for 2014, which took effect on July 1, 2015, exempted agri- each consignment. To obtain the import permit, the cultural implements (such as tractors, harrows, spades, importer must provide the TPRI a proforma invoice, forks) and inputs (for example, fertilizers, pesticides, and pay a 0.5 percent cess, and a US$125 inspection fee for insecticides), implements for fisheries and bee-keeping every three tons. At the border, a TPRI inspector may and dairy equipment.26 Farmer and agribusiness CHAPTER 5: Agriculture: Trade and Regulatory Policies | 69 representatives and others have, however, raised con- regulations should be restricted to specific traits impact- cerns about the completeness of the list of inputs that ing public health and safety and security. Including all qualified for exemption in this act. Agriculture nonstate standards at mandatory regulations creates additional actors have indicated that the list does not include work, increases compliance costs, and leaves less several key agriculture inputs including irrigation and resources for the TBS to focus on higher risk products. water harvesting equipment, rice processing equipment, special planting material tools including plastic bags and The National Standardization System is administered seed trays, milk processing supplies and equipment, and by the TBS. The TBS is responsible for formulating many other packaging and planting materials. national standards and technical regulations. Once approved, technical regulations are published in the Agricultural mechanization is a priority, but progress official Government Gazette and become compulsory. By remains slow, the list of tax exemption inputs requires conflating national standards as compulsory technical updating. The first phase of the ASDP, from 2003 to regulations the TBS ends up regulating many product 2015, prioritized agricultural mechanization to increase attributes that should not be mandatory, including the production and trade competitiveness. Different pro- size and shape of grains. Tanzanian standards and tech- grams were established to facilitate farmers to acquire nical regulations are generally adapted from interna- machineries. At the district level, farmers acquired farm tional standards, and mainly cover food and agriculture, machinery (for example, tractors and power tillers) chemicals, textiles and leather, engineering, the environ- through District Agriculture Development Plans. At the ment, and general techniques. national level, the Agricultural Inputs Trust Fund (AGITF) was established. The AGITF is a government financial Mandatory technical regulations should be readily and institution which was established to provide low interest freely available. The TBS sells the standards, which, in rate loans for farm inputs including machineries (Lyimo effect, are only available from their Head Office in Dar 2011; PASS Trust 2013). The total number of tractors es Salaam. Like any law, all mandatory technical regu- used across the country increased from 7,210 in fiscal lations should be publicly available at no cost to the 2006 to 10,283 in 2015 (statistics from the mechanization consumer. Further, there are considerable overlapping department of the MAFC). responsibilities between the TBS and the TFDA—both regulate the same products. This adds to the time and The Finance Bill 2016 addressed some of the previous resources required for obtaining approval to register concerns, but continues to exclude key agricultural even very basic food products and release crop inputs. equipment. The finance bill of 2016 proposed adding: Overall, the existing national quality infrastructure machinery used for agricultural, horticultural or for- imposes unnecessary costs on producers through over estry (except lawn mower or sports ground rollers and regulation, which adds to trade costs, undermines com- parts); and harvesting or threshing machinery. However, petitiveness, and effectively crowds out small traders proposals by nonstate actors for exception for some from participating in the formal sector. other key agriculture equipment are yet to be consid- ered. Examples of some of those pending proposals The requirement for Preexport Verification of includes adding to the exclusion list plant protection Conformity (PVoC) imposes increased costs on export- substances, storage, postharvest and cooling facilities, ers with no improvement in market access. The TBS and agro-nets, as well as spare parts for technolo- requires certain products to obtain PVoC prior to gies (that is, greenhouse and irrigation, and so on); and exporting from Tanzania. All products subject to PVoC applying tax exemption on other agricultural equipment must obtain a certificate of conformity (CoC), issued by (dam liners, pipes for irrigation, and so on). an authorized PVoC service provider in the country of export prior to shipment. The CoC confirms that the Standards and Technical Regulations products comply with the relevant Tanzanian techni- Many mandatory technical regulations should be cal regulations or approved equivalent international amended to become voluntary standards. The TBS has or regional standards. The PVoC procedure applies made all standards in agriculture into mandatory techni- to products subject to technical regulations, which cal regulations on health grounds. Mandatory technical includes used textiles, toys, furniture, safety equipment, TANZANIA DTIS 2017 | 70 and electrical products. Given the absence of interna- doing business. This reduces Tanzania’s competitiveness tional accreditation for testing by the TBS, the PVoC within the EAC and the global market, while resulting in requirement increases costs for a redundant test as higher prices for foodstuffs for all Tanzanians. most international importing markets will require the products to be retested. Lake Victoria fisheries is a good example of how SPS issues can be addressed successfully. In 1996, Tanzania The TFDA provides testing services for 37 mandatory experienced SPS restrictions with the EU ban on fish food safety parameters for cereal grains. The total pub- exports due to concerns over cholera and pesticide lished cost on the TFDA website for testing all 37 param- residues. Faced with the potential collapse of the fish- eters is US$2,105, which is equal to the value of about ing sector around Lake Victoria, the government and seven tons of maize and greater than the US$2,000 limit the private sector, with financial and technical support on STR transactions, effectively barring small traders from the EU, implemented wide ranging reforms, which from participating in this business, legally. successfully addressed the food safety issues and resulted in the ban being lifted in 1998. However, follow- Sanitary and Phytosanitary Measures ing concerns over fish poisoning with pesticide the ban SPS measures seek to protect human, animal, and was reimposed from April 1990 to January 2000. Once plant health from pests and diseases, and additives or market access was threatened, Tanzania implemented contaminants in foods and beverages. SPS measures the reforms and investments necessary for achieving are included in the food safety standards enforced by compliance with buyer demand more rapidly than either the government, and the various biosecurity controls Kenya or Uganda. The solution focused on certifying enforced at all border entry points aimed at keeping export-oriented firms and processors. This focus on out pests and diseases. The World Trade Organization’s meeting buyer demands for those firms exporting to the (WTO) SPS Agreement only addresses SPS measures EU met buyer demands and did not require compliance that provide for the control of traded food and plant and with EU standards for the whole industry. animal products, it is mutually exclusive with the WTO Agreement on Technical Barriers to Trade. This can The livestock sector has the potential for significant result in the same product having to comply with mul- growth and value addition with improved animal tiple regulatory agencies. For example, while maximum health and animal disease management. Tanzania has pesticide residue levels are an SPS matter, nutritional 25 million cattle, the third-largest herd in Africa, and value requirements are not and represent are an area a relatively large population of sheep and goats. The for possible technical regulation instead. Food safety bulk of Tanzania’s livestock may be divided between and quality issues thus require extensive inter-agency smallholders and pastoralists. More than half of all cooperation between multiple regulatory agencies. households keep livestock, however, only one percent would be classified as livestock farmers. With demand Tanzania’s food safety regime is fragmented, costly, for meat expected to triple by 2030, the Government of and ineffective. The TBS administers the technical Tanzania Livestock Modernization Initiative (2015) con- regulations relating to food quality, and the TFDA is siders the sector represents an attractive investment responsible for all the safety and health issues. In prac- opportunity for meat production, dairy products, and tice, however, many TBS standards cover health and leather. Tanzania is a net importer of dairy, beef, pork, safety issues, such as the maximum level of mycotoxins poultry, meat, and eggs. The sector is characterized allowed in maize. This regulatory overlap results in by low growth rates, high mortality (from disease), low suppliers having to comply with two sets of require- reproductive rates, and poor quality of the final prod- ments, make payments to both for multiple test results. ucts. Further, there is a shortage of modern slaughter The 2011 Confederation of Tanzania Industries study capacity with many of the existing facilities represent- on food safety regime identified 11 regulatory authori- ing a health risk. The 2010 National Livestock Sector ties responsible for more than 20 pieces of legislation Development Strategy identified three series of strate- (CTI 2011). The onerous compliance costs (estimated gic interventions aimed at addressing key constraints at more than US$15 million) resulted in higher prices holding back investment and growth. These include to consumers as firms passed on the increased cost of controlling livestock diseases and improving public CHAPTER 5: Agriculture: Trade and Regulatory Policies | 71 health, strengthening support services (veterinary, commercialization in the livestock requires the existing disease surveillance, preparedness, and control mea- SPS framework to be simplified and streamlined. sures, and improving the incentives (business-enabling environment) for private investment along the livestock Strengthening food safety is necessary for increasing value chain. links between agriculture and tourism. The growing tourism sector has the potential to generate significant Strengthening animal-based SPS management would backward links to the horticulture, livestock, poultry, help increase commercial livestock farming and live- and fisheries sectors. Poor quality and irregular supply stock productivity. Currently, there is limited commer- limit the links. Specific SPS constraints identified include cial livestock farming with the bulk of the meat and milk a lack of training on good hygiene practices, weak consumed in rural areas being traded through informal surveillance and monitoring system, and weak inspec- and unregulated channels. Tanzania experiences several torate capacities. transboundary diseases on the World Organization for Animal Health’s list A. Improved control measures and Radiation Testing for Agriculture and Foodstuff improved access to veterinary services will be required Imports and Exports before Tanzania can obtain official access to regional, The Tanzania Atomic Energy Commission (TAEC) and some international markets, for its livestock and requires all imported agricultural and food products to livestock products. In addition to strengthening animal- be screened prior to issuing the Radioactivity Analysis based SPS management, improvements are required Certificate, which is required before the goods can be in the marketing system to ensure more efficient released into Tanzania. The TAEC, established in 2003, is price transmission. responsible for promoting nuclear technology for eco- nomic development and for regulating radioactivity con- Livestock import and export regulations need to be tamination in foodstuffs. The TAEC has one laboratory in streamlined. The import and export of live animals and Arusha and a facility for screening in Dar es Salaam. meat products is regulated by the Tanzania Meat Board (TMB). All businesses importing and exporting live ani- mals and meat products are required to be registered BOX 5.7: Obtaining a Radioactivity Analysis Certificate with the TRA and the TMB. Export and import proce- dures are available on-line, which also notes that “some Prior to shipment, the trader has to send a sample to the Tanza- of the conditions are subject to amendment or cancel- nian Atomic Energy Commission (TAEC) to obtain prior approval. lation by the Director of Veterinary Service or other However, prescreening is only available at the Dar es Salaam and Namanga border points. If the product is perishable, the trader competent authorities (boards, the TFDA) at any time may bring the sample directly to the border where the TAEC will and without prior notice being given.” There are no ref- use a “quick detection facility.” erences to the criteria that must be met for taking action The fees for testing are: for imports below T Sh 10 million, a flat “without prior notice.” The TMB Clearance Certificates fee of T Sh 35,000; for values from T Sh 10 million to T Sh 1 billion, for each imported meat consignment are 2 percent of the fee is 0.4 percent of the free-on-board value; and for larger the FOB value plus US$1 per kilogram of meat for a than T Sh 1 billion values, a flat fee of T Sh 4 million. veterinary license. Prior to each shipment, the importer Exports are tested at 50 percent of the import rates. Although is required to pay for a survey and sampling to test for many export markets require a Radioactivity Analysis Certificate lead and salmonella in an International Organization for (RAC), the TAEC laboratory is not accredited internationally so Standardization-approved laboratory, and submit the the exports must be retested on entry (for example, to Japan). results to the TBS. The TBS will issue a Certificate of The TAEC has a monopoly on testing, no private internationally- Conformity against the sampling results. Once the ship- accredited company is allowed to issue the Tanzanian RAC. ment arrives, the importer has to submit a sample to The TAEC takes between 20–50 samples each day, and issues the Atomic Energy Authority who will test for radiation. between 400–1,000 certificates per month. The screening of per- The goods will only be cleared for sale after receiving ishables takes 2–3 hours in Arusha and 1 day in Dar es Salaam. the clearance from the Atomic Energy Authority. To Since the introduction of the compulsory testing, the TAEC has date, the atomic energy authority has not rejected one had no positive test results. agricultural consignment. Increasing investment and TANZANIA DTIS 2017 | 72 The absence of risk assessment increases costs and inland lakes where more than a third of the total reduces the focus on high-risk consignments. Com- population reside and is also a significant potential pulsory radiation testing increases costs and diverts source of income for Zanzibar. resources from addressing higher potential risks. The testing of all food imports for radioactivity increases Maize trade costs, creates a demand for increased testing and Maize is primarily grown by smallholders as both a laboratory facilities, and takes scarce resources away household staple and cash crop. More than 4.5 mil- from addressing potentially higher risks. The blanket lion households (80 percent of the total crop growing testing policy does not distinguish those originating from households) reported selling maize. In 2016, smallhold- low-risk areas or those that had previously been tested. ers produced 85 percent of the total maize crop of 6.7 The mandatory testing appears to serve no public policy million metric tons (MALFD 2016). Over the past decade, objective other than to raise revenue towards funding maize yields averaged 1.3 tons per hectare, this is 20 the salaries of the TAEC. Since testing is required for a percent less than the average for Sub-Saharan Africa batch of imports, this requirement discriminates against and 2.8 times lower than the world average. Recent small traders who have to pay a flat fee of approxi- aggregate increases in maize production have largely mately US$17.50 on any value up to US$500. In practice, resulted from expanding area under production rather this encourages evasion, and there is evidence that even than increasing yields. Maize production continues to medium and large traders offload a truck at the border be dependent on rainfall, with most smallholders using and send the goods across informally before reloading recycled seeds and little fertilizer. on the other side. Despite low productivity, Tanzania remains a large pro- ducer and has the potential to sell into regional markets. Selected Agricultural Sectors: Growth and Due to the abundance of fertile land and large number Structural Change of farmers growing maize, Tanzania is well placed to supply this staple food to Kenya, which has a structural This section presents a brief overview of the major deficit. Tanzania’s official maize exports rarely exceed 3 trends in maize, rice, sugar, and cashew production and percent of total production (less than 100,000 tons per fisheries. Maize and rice are the main staple food crops year) and could increase significantly without being a in Tanzania grown by smallholders for both household threat to domestic food security. consumption and sale in the market. Both rice and sugar receive high levels of trade protection as the Tanzanian The government has a record of introducing export government seeks to encourage self-sufficiency. bans at short notice. Between 2002 and 2014, Tanzania Fisheries remains an important subsector and provides imposed five exports bans. The first two bans spanned a livelihood for several million people. While each sec- between January 2004 to January 2007, except for a tor experiences specific constraints, it is apparent that brief three-month period at the beginning of 2006. A the cross-cutting value chains issues addressed in the five-month export ban was put in place in 2008, and a previous section are central to increasing investment ban, which lasted almost two years, was in effect during and productivity in agriculture and expanding links with 2009 and 2010. The duration of the last ban during manufacturing. Realizing the objectives set down in this period lacked transparency. It was announced in FYDP II and the TAFSIP requires improvements in the March 2011, but only became effective in July and, in policy and regulatory environment. October, it was announced it would be removed, yet it was only ended in December 2011. The export bans While not comprehensive these subsectors constitute (with exception of the ban in 2002) were introduced the main source of income for more than half of the at times of high maize prices in neighboring countries rural population and for the poorest two-thirds of and removed when prices were low. This is consistent the population. Addressing constraints to increasing with the government imposing export bans in response productivity in these subsectors would contribute to food security concerns caused by production to reducing poverty in the rural areas. Fisheries shortfalls or price increases (USAID Feed the Future represents an important growth sector around the Initiative 2014), but this also means that farmers with CHAPTER 5: Agriculture: Trade and Regulatory Policies | 73 a surplus are unable to benefit from trade and, in turn, causes market uncertainty and makes it difficult, if not disincentives other farmers from working to grow a impossible, for traders to negotiate forward contracts surplus in the future.27 with growers and international buyers. The most recent export ban on maize was introduced in 2014, which Even when there was a ban in place, export trade per- was lifted on September 9, 2016, although consultations sists, albeit with much lower profit margins for Tanzania. reveal that during late 2015, a new ban was announced Mirror trade data between Kenya and Tanzania show before lifting the previous one. Consultations further large volumes of maize are exported from Tanzania reveal that maize traders were not given prior notice even when there is an official ban. Some maize may stay of the ban, and that those already holding export in the country because of the ban, but the border is sim- permits were not allowed to use the permits since ply too porous and the demand in Kenya is too strong to the ban was with immediate effect. Some traders stop all exports. When there is a ban in place, therefore, argue that they were not informed of the ban, and, Tanzanian farmers and traders say they are forced subsequently, incurred losses due to their prenegotiated to accept low prices due to the market risks. Kenyan export contracts. importers, however, say their profits surge when Tanzania imposes a ban because of being able to use the The threat of future export restrictions is sufficient to risk as a reason for paying Tanzanian farmers and local discourage investment by small farmers and traders. aggregators less. Periodic export bans and uncertainty over the possible reimposition of export restrictions are a major disin- Export bans are rarely effective at stopping exports yet centive to increasing maize production. Ad hoc bans increases seasonal price variability by depressing prices cause significant market uncertainty for private sector at harvest and limiting the seasonal price increase traders and ultimately make them less responsive to prior to the next harvest. Analysis of the 2011 export future opportunities for trade and investment. This dis- ban shows it had a larger impact on maize prices than courages investment in fertilizer, improved seeds, and the previous export bans causing maize prices to be the uncertain supply further discourages investment in 8.8 percent lower for every month that the ban was in storage facilities (warehouses). The inability to sell in effect than without the ban. The analysis also showed neighboring markets suppresses the income of a large that while the effect of the ban was relatively muted in number of smallholders who are prevented from obtain- the Southern Zone, all the other five zones experienced ing higher price. an impact that was large and significant (USAID Feed the Future Initiative 2014). Lower maize prices may be Insufficient and low-quality grain storage continue popular with urban consumers in the short run, but ulti- to serve as a constraint to efficient maize marketing. mately discourage production, harming them in the long Despite some recent private investments in storage run. Bans also reduces rural incomes and work against and expansion of the warehouse receipts system, lack rural poverty reduction (as noted, over 70 percent of of adequate storage facilities and marketing opportuni- the population reside in the rural areas where poverty ties remains a major feature of Tanzanian agriculture. is much deeper and more pervasive compared with Postharvest losses of up to 30–40 percent in some urban areas). rural areas continue to be reported (Suleiman and Rosentrater 2015). Weaknesses in storage and handling The threat of export bans is an important constraint also result in increased health risks from aflatoxin in to growth. History matters. The use of export bans on the processed flour from maize, wheat, and cassava. maize and other strategic commodities since the 1980s Studies by the TFDA have documented levels of aflatox- to try to ensure domestic food security has continued ins in maize that exceed the recommended maximum to influence investment decisions even after the bans limits by the TBS (TFDA and Abt 2012). With increasing were lifted. While there are numerous studies showing attention given to aflatoxin through mandatory EAC that export bans fail to increase food security and standards, poor handling and lack of storage is a funda- always result in much lower prices for farmers,28 the mental constraint to Tanzania’s ability to compete with government has persisted with this policy. An export global suppliers in regional markets. ban is usually imposed with immediate effect. This TANZANIA DTIS 2017 | 74 Rice Owing to its strategic importance, rice was among After maize, rice is the second most important cereal the three commodities included in the BRN initiative, crop in Tanzania. Many types of farmers grow rice. launched by President Kikwete. Under this initiative, Medium and large farmers typically produce rice for production was expected to increase by 290,000 tons market sale, while small farmers grow primarily for (Maro and Witwer 2014). Three sites were earmarked their own consumption. Figure 5.4 shows the main by the SAGCOT for rice production promotion; Ngalima trends in rice production, area, and yields over the site with 5,126 hectares, Kihansi site with 5,200 hect- period 2005–13. Rice production is a major source of ares, Mkulanzi site with 63,000 hectares. The prior- employment, and income for many farming households ity on increasing rice production under the BRN was (NBS 2007/08). The National Agricultural Sample Census consistent with the vision of the 2009 National Rice of 2002/03 reported that 42 percent of rice production Development Strategy (NRDS), developed as a compo- is marketed, with medium- and large-scale farmers nent of ASDP 2013 and the Tanzania Development Vision accounting for 87 percent (Minot 2010).29 In the agricul- 2025, which sought to commercialize subsistence pro- tural census,30 rice was the second most widely grown duction. The NRDS identified improving irrigation and cereal crop after maize in terms of production area. Rice water harvesting technology as major strategic thrusts. is grown by many smallholder farmers using traditional seed varieties. Rice is grown in three main ecosystems Rice is one of the top five commodities in intraregional (SAGCOT 2010): rain fed lowlands (68 percent): average EAC trade. Consumption of rice in the EAC grew at an productivity 3.5 tons per hectare; rain fed uplands (20 average rate of 4 percent per year over the ten-year percent): average productivity 1.2 tons per hectare; and period to 2012, and according to analysis by Kilimo Trust irrigated rice cultivation (12 percent): average productiv- (2014), rice consumption is projected to continue to grow ity 3.8 tons per hectare. in the foreseeable future. Rising per capita incomes and rapid urbanization in recent years have resulted in a Tanzania has a long history of donor-sponsored invest- substantial increase in annual per capita rice consump- ment in irrigation systems for rice. Most irrigated plots tion by nearly 20 percent to about 25–30 kilograms per are part of small, village-level schemes; however, some year (Kilimo Trust 2014). This growth in per capita rice are part of large-scale schemes that were formerly consumption has stimulated both domestic production state-managed farms (Minot 2010). Nearly half of the and the trade in rice. country’s rice production is concentrated in the regions of Morogoro, Shinyanga, Tabora, Mwanza, and Mbeya. There are good prospects for increased rice production The top four rice-producing regions are in the northern and trade in the EAC. Tanzania is the largest consumer part of the country (Maro and Witwer 2014). of rice in the EAC, with annual consumption standing at approximately 1.18 million tons, or nearly 65 percent FIGURE 5.4: Rice Production, Area, and Yields, FY2005–13 of total EAC production. Kenya is the second-largest consumer at 370,000 tons annually, and is structurally 3,000 3.0 deficit in the commodity with local production estimated to be only around 125,000 tons (or just 33 percent of 2,500 2.5 total consumption needs), providing a good opportunity Tons and hectares, thousands 2,000 2.0 for Tanzania to export to a nearby market (Short and Tons per hectare others 2012). 1,500 1.5 The EAC market represents a significant opportunity 1,000 1.0 for Tanzania to increase rice exports. Currently, only 3 percent of the rice imported into Kenya comes from 500 0.5 Tanzania. Formal sector figures show that Tanzania 0 0 exports 27,000–37,000 tons annually to other EAC coun- FY2005 FY2007 FY2009 FY2011 FY2013 tries and 17,000–25,000 tons to other African countries, Production (tons) Area (hectares) Yield (tons per hectare) including Malawi, the Democratic Republic of Congo, Source: Tanzanian Ministry of Agriculture, Livestock and Fisheries Development South Sudan, and Zambia. This is equivalent to 3.5 CHAPTER 5: Agriculture: Trade and Regulatory Policies | 75 percent of total EAC rice consumption. On top of these in 2013 from 35 percent to 15 percent, local producers volumes, informal trade is considerable because traders and rice stakeholders (Rice Council of Tanzania) lob- seek to circumvent burdensome trade procedures that bied for the EAC CET to be increased to 75 percent on prevent them from trading officially. Most of Tanzania’s infant industry grounds.32 Low productivity resulting rice imports come from Far East Asia.31 from using outdated seeds and expensive and insuf- ficient fertilizer undoubtedly constrains the ability of The EAC continues to rely on high tariff protection for Tanzania’s rice producers to be internationally competi- rice rather than focusing on increasing competitiveness tive. However, applying a high tariff does not address through lowering input costs. In 2015, the EAC increased the root cause of the high input costs while failing to the CET on imported rice to 75 percent or US$200 per “protect” producers from widespread exemptions and metric ton. This was a policy reversal from Tanzania’s trade diversion via Zanzibar. Further, a tariff increases prior tariff of 15 percent and represented a return to the price of a basic staple and has an adverse impact on the high levels of protection applied by the EAC from the lowest income groups. 2005 to 2011 (see box 5.8). While these tariffs may pro- vide temporary relief to local producers, they do little Sugar (or nothing) to address underlying competitiveness Tanzania has the potential to expand sugar production. constraints and may even serve to forestall the kind of Tanzania has the right geographical conditions for grow- improvements Tanzania needs to realize its full poten- ing sugar yet does not grow enough to meet domestic tial in this commodity and become a major regional demand and imports more than US$100 million of sugar exporter. The slow introduction of new varieties of rice per year (see table 5.4). During preparation of the DTIS seed and regulations that prevent fertilizer companies update, the government announced tight restrictions on from marketing fertilizer types specifically tailored to sugar imports with the aim of stimulating increased lo- the crop and individual soil types are good examples of cal production and achieving self-sufficiency by 2020. self-made regulatory barriers to increased production The stated aim is to promote local production by levy- and expanded export trade. ing high tariffs and quantitative restrictions on imports. Tariffs and quantitative restrictions increase the price of Through 2005 and 2011, high tariffs on rice enabled sugar, a basic staple, in the domestic market. They also large-scale traders, who could obtain import rebate allow the sugar industry to realize higher prices thereby permits, to capture large rents as they can import rice minimizing the incentives to address underlying struc- at world prices which can then be sold into a protected tural constraints that hinder long-term competitive- market. This undermined the stated intent of protecting ness gains. smallholders who, with low productivity, were unable to compete with the imported rice. Following the deci- Between 1998 and 2001, the total area under sugar sion of the Tanzanian government to reduce rice tariffs cane cultivation expanded rapidly following the priva- tization of sugar processing companies. There are cur- rently four milling companies in Tanzania (Kilombero BOX 5.8: Tanzania Rice Tariffs Fluctuating from 2005 to 2015 Sugar Company, Mtibwa Sugar Estates, Tanganyika Planting Company, and Kagera Sugar). The government From 2005 to 2011, the East African Community (EAC) applied a has 25 percent equity in Kilombero Sugar Company tariff level of 75 percent to promote import substitution. The ear- lier high tariff levels had increased prices in the protected market, and Tanganyika Planting Company, which are major- and the large gap between international prices and prices in the ity owned by Illovo, a subsidiary of Associated British EAC encouraged substantial lobbying to import under rebate. Further, Zanzibar applied a much lower tariff (12.5 percent) and the Tanzanian government granted import rebates. In 2013, TABLE 5.4: Tanzania Sugar Imports and Exports, US$ million, Tanzania reduced the tariff on rice from 35 to 15 percent, which 2013–14 continued the move away from the earlier EAC policy of high tar- 2013 2014 iff protection aimed to promote increase production. In 2015, the EAC increased rice tariffs to 75 percent. Imports 132.8 96.6 Exports 95.3 61.4 Source: Derived from Barreiro-Hurle (2012) and project interviews. Source: Derived from United Nations Comtrade data. Note: The harmonized system code for sugar is 1701. TANZANIA DTIS 2017 | 76 Foods, and Alteo from Mauritius. Super Group, a importers for industrial use, and Category C less than 5 Tanzanian firm owns Mtibwa Sugar Estates and Kagera metric tons. Sugar. Taken together, therefore, the sugar industry is concentrated in the hands of a very few owners. Existing policies have raised prices for consumers, Kilombero Sugar is the largest miller accounting for half undermined the stated incentives for sugar produc- of total cane processed. These four companies in aggre- ers, and created incentives for large traders to capture gate can produce approximately half of the total domes- windfall rents from importing under rebate and selling tic demand of 600,000 tons (420,000 raw sugar for into a protected market. The policies of the Tanzanian domestic consumption and 170,000 for industrial use). government confuse the incentives and interests fac- ing producers and consumers. High tariff protection The sugar milling industry continues to be protected by reduces the incentive for producers to improve their high tariffs. The Sugar Board of Tanzania’s (SBT) new productivity (efficiency) as they can sell at higher prices strategy aims to support the mills to increase productiv- into both the EU market and the domestic market, how- ity. The government justifies the 100 percent tariff on im- ever, the price in the domestic market is uncertain as ported sugar as necessary for the sector to develop yet the government permits imports under rebate. Sugar this has been the strategy for the past decade. It would is permitted to be imported through the Dar es Salaam be useful to identify the bottlenecks and develop an ac- port with a license which waives the duty. In January tion plan aimed at increasing the industry’s competitive- 2013, the MALF issued licenses for 35,000 tons of sugar ness. There is considerable opportunity for the existing yet later allowed 85,000 tons to be imported impact- mills to improve their productivity to move towards in- ing on the price. Large traders aim to maximize the ternational best practice. Increased competitiveness price at which they sell into the domestic market and would enable tariffs to be reduced without increasing have resorted to withholding sugar in warehouses to imports. As production area expands, there have been drive up prices. Consumer complaints of sugar short- reports of declining sucrose levels in the sugar cane ages have occurred periodically over the past decade. reaching the factory, which hurts the cane grower for The combination of high consumer prices and the large whom price is linked to the percentage sucrose. Ideally, rents being made by large scale importers in conjunc- sugar cane must be processed within 30 minutes of cut- tion with a nontransparent process for allocating import ting to prevent natural sucrose depletion. Despite these quotas by the SBT has contributed to the decision by the basic economics of the industry, the Sugar Board has so Tanzanian government (in early 2016) to directly import far resisted licensing second mills within an 80-kilome- sugar to meet the shortfall in supply. ter radius of an existing mill. Inefficiencies in the milling industry along with the political influence of the millers Reducing the tariff on sugar and liberalizing the mar- have thus enabled these firms to pass on the high pro- ket for sugar would encourage efficiency, promote cessing costs to consumers with little competition or growth, and benefit consumers. A FAO (2012) report on pressure to undertake much needed investments. incentives and disincentives in the sugar sector recom- mended liberalizing the sugar trade and reducing the The SBT continues to act as a single channel for export tariff. With large numbers of people dependent on sugar marketing and sets quotas for imports. Through an growing and processing for their livelihood, it is essen- agreement with the EU, sugar has been exported to the tial that regulatory reforms, including tariff reductions, EU at higher prices than those prevailing in the EAC. The be closely related to increasing efficiency and competi- SBT licenses sugar exporters and requires the export tiveness. Committing to more open and transparent price to exceed the import price, they also prescribe the policies at the regional level (EAC) or multilaterally at maximum quantity of sugar that can be exported, after the WTO level will contribute to preserving existing jobs considering domestic production and demand. The SBT while encouraging increased investment and expansion specifies the maximum amount of sugar that “needs” of the sector. to be imported during a 12-month period and licenses and registers all importers. There are 3 categories of Cashew importer: Category A large importers (more than 60 Tanzania is a leading producer of cashew nuts, with metric tons) for domestic consumption, Category B large exports accounting for 10 percent of the global trade. CHAPTER 5: Agriculture: Trade and Regulatory Policies | 77 Cashew is primarily grown by an estimated 300,000 at lower prices on the informal market. Large cashew smallholders in the coastal areas. Tanzania is one of farmers expressed concern over the reliability of CBT the largest producers of cashew nuts in Africa and with grading and noted their inability to obtain compensation world demand growing the sector has the potential when products are wrongly classified. to increase exports significantly. Virtually all produc- tion is exported in raw unshelled form for processing The main constraints holding back further development to India, Vietnam, and Brazil, with less than 10 percent of the cashew sector stem from its existing structure being processed in Tanzania. With raw cashews sell- and regulation. While the auction system may have ing for approximately US$1 per kilogram, compared to helped increase competition between buyers at the US$6 per kilogram for processed nuts, the government point of sale, regulations governing cooperatives serve has sought to encourage increased value added and to undermine the incentives for investing in domestic processing in Tanzania. Approximately 150,000 tons of processing. The operation of the auction system results cashew nuts are exported each year. in processors competing for raw materials at the same time as the peak demand from Indian processor. The Cashew marketing and exports are controlled by requirement that all cashew nuts must be sold via the Cashewnut Board of Tanzania (CBT), a statutory the cooperative union and auction system increases monopoly, which regulates and promotes the quality, transaction costs and prevents farmers and farmer marketing, and export of raw and processed nuts. groups from developing commercial relationships, Fitzpatrick (2012) characterized the cashew industry as including outgrower arrangements along the supply low productivity and low value added. The government chain. Under this regulatory framework any new subsidizes inputs (seedlings, fertilizer), however, processor would be unable to guarantee the supply of these are distributed through local governments and raw cashews. primary cooperative societies and often arrive late and in insufficient quantities. The costs of transporting The net price received by cashew farmers is reduced cashew nuts from the farm gate to licensed warehouses by relatively high taxes, high cooperative operating under the CBT’s warehouse receipt system and then costs, and high export margins deducted by traders. on to the ports for export are high and further reduce The farmer receives between 67–80 percent of the auc- farmer income. tion sale price, however, when the cost of shipping the cashews from the warehouse to the port is included, The CBT introduced the Warehouse Receipt System the return declines to 57–65 percent of the auction sale in 2007. Fitzpatrick (2012), in a consultancy for the price. Cashew farmers pay approximately 15 percent to Agricultural Non State Actors Forum, concluded that the cooperatives and logistics firms. single-channel marketing through the CBT works to reduce profits for smallholders growing cashew. A The unique market structure of the cashew sector re- recent paper by Akyoo and Mpenda (2014) is less critical quires more work before concluding on the efficien- of the WRS, although still notes that high transaction cy of the cooperatives. A more detailed assessment is costs associated with “cooperative monopolies” nega- required before drawing conclusions on the efficien- tively impacts farmer profits. The authors placed the cy of the charges levied by the cooperative and logis- structural and institutional weaknesses on “clandestine tics firms, as the cashew sector has several character- buyer collusion and predatory pricing at the expense istics which have the potential to drive down prices to of local processing.” It was envisaged that the WRS the farmer. Firstly, the international cashew market has would increase competition between processors and been plagued by collusion which would also serve to re- enable farmers to obtain improved prices. However, duce prices to farmers. Further, the existence of ma- the requirement for producers to use the CBT WRS has ny small-scale producers will reduce prices to farm- inhibited competition. Further, although private trad- ers as aggregators have to cover their costs and, thirdly, ers have the right to participate in the WRS, Fitzpatrick high internal transport costs will also drive down farm- notes that local cooperatives and domestic political gate prices, as will a lack of awareness of grading by interests sought to limit private participation. This the farmers. sometimes results in farmers choosing to sell for cash TANZANIA DTIS 2017 | 78 The export tax on raw cashews has the unintended The fisheries sector is heavily regulated and restricts effect of lowering prices to smallholders, and the exist- artisanal fishing to Tanzanian nationals. Restrictive entry ing marketing regulations and the compulsory use of requirements for artisanal fishing inhibits competition, the WRS serve to reduce the incentives for investing in restricts investment, and is against the spirit of the EAC processing facilities. The Tanzanian government intro- single market. The stated objective of the fisheries sec- duced an export tax in 1998 at 3 percent of the FOB tor regulation of 2009 is the sustainable development price, in 2005, this was increased to 10 percent with and the protection and conservation of resources. Pri- 6.5 percent earmarked for inputs and research and mary or artisanal fishing is reserved for Tanzanian na- development, and, in 2011, it was further increased to 15 tionals, however, there are no nationality requirements percent, with the aim of encouraging more investment in for fish processing. The Ministry of Livestock and Fish- domestic processing. eries in Dar es Salaam issues the licenses to foreign in- vestors and for all fishing vessels over 11 meters, while Fisheries regional and district offices are empowered to license The fisheries sector remains a major employer with national investors and vessels of less than 11 meters. substantial growth potential constrained by wide rang- The fees for foreign-owned ships are double those for ing regulations restricting licenses and ownership. local vessels. Further, nationals are charged lower fees Fish and fish products remain a significant export from for export licenses. The Tanzanian government also lev- Tanzania, accounting for 3 percent of total merchandise ies an export royalty on a FOB basis by the weight and exports in 2014 and providing employment for 121,000 grade of the product, which discourages competition. people in the mainland and 25,000 people in Zanzibar. This represents a relative decline from 15 percent in As in other areas of agriculture, major challenges facing 2003 reported in the earlier DTIS. Fish remains a major the fisheries sector include the existing high govern- source of protein for a third of the population. The ment royalties on fish products, multiple and duplicated trend in fish exports over the past decade is shown in taxes, surcharges, and levies on fish products levied at figure 5.5. the local and national level.33 The sector is dominated by artisanal inland fishing Addressing Constraints to Growth of Nile perch, tilapia, and dagaa from lakes Victoria, Tanganyika, and Nyasa. The marine fisheries catch Taking a trade lens to agriculture, this chapter has sardinallas, mackerel, and tuna from the Indian Ocean. focused on access to agricultural inputs and cross- Europe and Asia are the major markets for Nile perch border regulations, fees, and taxes. The priority recom- and shrimp, while dagaa fish are mainly sold within mendations for addressing the constraints to expanding the region. growth in the agricultural sector are summarized below. FIGURE 5.5: Tanzania Fisheries Exports, 2005–14 The unpredictable imposition of trade bans creates mar- ket uncertainty and discourages investment. Imported 250 agricultural inputs, such as seeds and fertilizer, remain heavily regulated, although the government has commit- 200 ted to streamline the regulations to enable quicker and more cost-effective access to higher productivity seeds US$, million 150 and a wider range of fertilizers. 100 Obtaining accurate information on existing charges and 50 tariffs and regulatory requirements applying to both the import and export of agricultural inputs and products 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 remains challenging. There is no one source for all rele- Fish (live/fresh/chilled/frozen) Crustaceans vant information, producers and traders are required to Fish (dried/salted/smoked) contact multiple regulatory agencies. Establishing a Na- Source: Derived from Tanzania National Bureau of Statistics. tional Agricultural Portal would address this constraint. CHAPTER 5: Agriculture: Trade and Regulatory Policies | 79 Reducing the barriers to accessing a wide range of contributed to major increases in formal small-scale agricultural inputs at competitive prices requires the trade transactions recorded by customs authorities, and government to streamline existing procedures and to visible improvement in the relations between traders to remove the duplication of responsibilities across and officials. Additionally, charter pilot work was also multiple regulatory agencies. Reforming the Seed Act initiated at two border posts in Tanzania, where the ini- and the Fertilizer Act to allow the fast track registration tiative greatly benefitted from close collaborations with of new seed types and removing restrictions on the Ministry of Industry, Trade and Investment, Tanzania fertilizer and types of fertilizer will encourage more Trade Development Authority, and local government efficient production. authorities, as well as traders’ associations, private sector representatives and regional organizations, Promoting increased commercialization amongst small- such as the Dar es Salaam Corridor Committee—such holders and encouraging small traders requires the work could be expanded and replicated elsewhere in government to reduce the implicit biases that effectively the country, as part of the measures taken to improve diminish and crowd them out from many agricultural conditions at the border and facilitate the movement markets. The government should review all the licenses, of small-scale traders and their goods. Finally, in fees, and documentary requirements with the aim of 2014, the charter was also adopted by the Common reducing transaction costs. Market for Eastern and Southern Africa as an official regulation, under the name of “Regulations for the Reducing the regulatory burden on small traders will Minimum Standards for the Treatment of Small Scale encourage informal traders to declare their goods while Cross-Border Traders.” Similarly, and possibly as part crossing the border. This process may be facilitated of efforts related to the charter, resources should be through adopting a code of conduct that specifically devoted to enhancing the capacity of small-scale traders aims to eliminate the uncertainty facing small traders and officials, particularly in relation to the preferential of being subject to misinformation and harassment at trade conditions currently available under the EAC the border. The Charter for Cross-Border Traders aims Customs Union, to special regimes such as the EAC STR, to address many of the challenges faced by small trad- and to cross-border (agricultural) traders in Tanzania. ers when moving goods across borders. Launched by the World Bank in response to an explicit request by In March 2016, the World Bank approved a US$70 mil- local stakeholders, the charter introduces a mutual lion project to support Tanzania’s agricultural sector framework of rights and obligations that symmetrically through linking smallholder farmers to agribusiness applies to both traders and officials: it sets basic prin- to facilitate job-based growth. The project supports ciples of transparency, efficient processing, fair treat- the SAGCOT and seeks to provide 100,000 smallholder ment, and zero tolerance to corruption, and translates farmers with new technologies, marketing practices, them into action through capacity building, extensive and expanded partnerships with more experienced agri- dissemination, and the introduction of toll-free line businesses. The recommendations in the action matrix systems. Ultimately, the charter aims to facilitate small- complement the new agribusiness project while also scale cross-border trade, to improve relations between supporting the principles of the NAP, which commits to officials and traders, and to create the conditions for increasing the role of the private sector in production, the latter to gradually formalize, thus contributing to marketing, and pricing decisions to promote increased increased customs revenues—additionally, the initiative cross-border trade in crops and value-added agricul- provides for a number of gender-sensitive principles tural products. and interventions that intend to specifically address challenges faced by women cross-border traders Notes (Brenton and others 2014). 1.  World Development Indicators (database), With support from the World Bank and in close coopera- World Bank, Washington, D.C. (accessed December tion with the respective governments, traders’ associa- 19, 2016), http://data.worldbank.org/data-catalog/ tions, and border agencies, the charter was successfully world-development-indicators. piloted in Malawi and Zambia, where, in some cases, it 2.  Economic reforms in Uganda encouraged rapid TANZANIA DTIS 2017 | 80 expansion in coffee production and significantly reduced 19.  USAID-EAT (2013). poverty levels in the rural areas. For a summary, see 20.  Information from industry sources. World Bank (2007). 21.  No official reason has been given for the nonim- 3.  The poverty rate began to decline under the previ- plementation of the agreement on mutual recognition. ous plans, 2001–07 and 2007–12. 22.  As is the case in Zambia. 4.  The ASDP II highlights low land and labor produc- 23.  In 2006, the Africa Union’s Abuja Declaration on tivity in the agricultural sector as constraints on agricul- Fertilizer in Africa set a target of 50 kilograms per hect- tural growth (p.3). Increasing agricultural productivity are by 2015. would be expected to raise living standards in the rural 24.  It should also be noted that domestic transport areas. costs contribute a large share of the total costs. 5.  Even in agencies with a good website, the infor- 25.  “The Fertilizer (Bulk Procurement) Regulations, mation is not always kept up to date. For example, the 2017,” The Fertilizer Act (CAP .378). Tanzania Revenue Authority website currently provides 26.  The exemptions in the revised VAT Act 2014 do the Tariff Schedule for 2012 (accessed January 11, 2017), not cover milk processing supplies and equipment and www.tra.go.tz/. therefore might negate the recent productivity improve- 6.  NPK refers to the value of the three macro- ments in the dairy industry (personal discussion with an nutrients used by the plants, these are N-nitrogen, officer from Tanzania Dairy Board). P-phosphorus, and K-potassium. 27.  There are numerous studies examining the 7.  The World Bank Enabling Business for impact of export restrictions on food security. The con- Agriculture (EBA) scores countries on both the quality sensus from the detailed case studies finds that export and efficiency of their regulatory systems. For 2017, it bans have been ineffective and may carry significant is possible to compare Tanzania against 61 other coun- costs as the lower prices discourages farmers from tries across eight indicators (seed, fertilizer, machinery, increasing production. finance, markets, transport, water, and information and 28.  For example, Diao and others (2013) or USAID communications technologies). The EBA was launched Feed the Future (2012). in 2014 and aims to allow countries to take stock of their 29.  Small-scale farmers account for only 13 percent regulatory environment and encourage change (analo- of all the rice sold in the market. gous to the World Bank Doing Business Indicators). 30.  This is the most recent published survey. 8.  Agriculture First in Swahili. 31.  Far East Asia includes imports originated from 9.  See section 1.3 of the National Agricultural Policy the Arabic peninsula countries, as it is considered that (2013). imports from Asia transit through these countries on 10.  Using COMTRADE Mirror Data. their way to Tanzania. 11.  Joint Cross Border Market and Trade Monitoring 32.  Policy Dialogue on Tanzania Rice Chain Initiative (2015). Stakeholders in the EAC Common Market, September 12.  Keyser and others (2010). 2015. 13.  According to UN Comtrade data, dried and 33.  High levels of taxation were identified as a major smoked fish almost certainly understate the true impor- cross-cutting constraint in the 2005 DTIS, pp.146ff. tance of these products because they are widely traded through informal channels. References 14.  For more information, see the U.S. Department of Commerce’s International Trade Akyoo, Adam and Zena Mpenda. 2014. “Policy Administration’s website at https://www.export.gov/ Imperatives for Control of Market Exchange Failure article?id=Tanzania-Agro-Processing. in the Cashew Nut Industry in Tanzania.” European 15.  United Republic of Tanzania (2011). Scientific Journal 2 (February): 313–325. 16.  For a detailed explanation, see Amin and Stryker Amin, Mukhtar and Dirck Stryker. 2013. Impact of Export (2013). and Import Permits on Staple Food Trade in Tanzania. 17.  Since each trader requires a license, this is not Cambridge: Associates for International Resources compliant. and Development. 18.  World Bank (2009). Brenton, Paul, Nora Dihel, Mombert Hoppe, and Carmine CHAPTER 5: Agriculture: Trade and Regulatory Policies | 81 Soprano. 2014. Improving Behavior at Borders and Maize. Washington, D.C.: World Bank. to Promote Trade Formalization: The Charter for Kilimo Trust. 2014. 2014. Expanding Markets for Rice Cross Border Trade. Africa Trade Policy Note 41. in the East African Community (EAC) Region: Great Washington, D.C.: World Bank. Opportunity for Actors in Locally Produced Rice. Cagley, Jessica Henson, Grugerty, Mary Kay, and Kampala: Kilimo Trust. Plotnick, Robert. 2009. “Political Economy of Fertilizer Lyimo, Mark. 2011. “Country Presentation on Agricultural Policy in Tanzania.” Paper prepared for the Farmer Mechanization in Tanzania.” Workshop presentation Productivity Team of the Bill and Melinda Gates on “Boosting Agricultural Mechanization in Rice- Foundation. University of Washington, Seattle. Based Systems in Sub-Saharan Africa,” Saint Louis, https://evans.uw.edu/sites/default/files/Evans_UW_ June 6–8. Request%2075_Political%20Economy%20of%20 MAFC (Ministry of Agriculture, Food Security and Fertilizer%20Policy_Tanzania_2%20November%20 Cooperatives). 2013. National Agricultural Policy. Dar 2009_0.pdf. es Salaam: MAFC. CTI (Confederation of Tanzania Industries). 2011. MALF (Tanzania, Ministry of Agriculture Livestock and “Challenges of Unreliable Electricity Supply to Fisheries). 2007. Agricultural Sector Development Manufactures in Tanzania.“ Policy research paper, Programme. Dar es Salaam: MALF. Dar es Salaam, CTI. Maro, Festo and Megan Witwer. 2014. Technical Note: Diao, Xinshen, Adam Kennedy, Athur Mabiso, and Angga Analysis of Price Incentives for Rice in Tanzania for the Pradesh. 2013. “Economywide Impact of Maize Time Period 2005-2013 . Rome: Food and Agriculture Export Bans on Agricultural Growth and Household Organization of the United Nations. Welfare in Tanzania: A Dynamic Computable General Minot, Nicholas, 2010. “Staple Food Prices in Tanzania.” Equilibrium Model Analysis.” IFPRI Discussion Paper Paper prepared for the Common Market for Eastern 1287, International Food Policy Research Institute, and Southern Africa Policy Seminar on “Variation Washington, D.C. http://ebrary.ifpri.org/cdm/ref/ in Staple Food Prices: Causes, Consequence, and collection/p15738coll2/id/127796. Policy Options,” Maputo, January 25–26. https:// Fitzpatrick, James. 2012. Advocating for Effective ageconsearch.umn.edu/bitstream/58555/2/AAMP_ Regulation of the Cashew Nut Industry in Tanzania. Maputo_24_Tanzania_ppr.pdf. Dar es Salaam: Agricultural Non-State Actors Forum. NBS (Tanzania National Bureau of Statistics). 2014/15. Gisselquist, David and Carl Pray. 1999. “Deregulating Annual Agricultural Sample Survey. Dar es Salaam: Technology Transfer in Agriculture: Reform’s Impact NBS. on Turkey in the 1980s.” World Bank Policy Research _____. 2007/08. Crop Sector National Report Census of Working Paper No. 2086, World Bank, Washington Agriculture. Dar es Salaam: NBS. D.C. Ng’wanakilala, Fumbuka. 2016. “Tanzania to begin Harun-Ar-Rashid, Mohafez Ali, and David Gisselquist. building $3 bln fertiliser plant this year.” Reuters, 2012. Private-sector Agricultural Research and May 20. http://www.reuters.com/article/ Innovation in Bangladesh Agriculture: Overview, tanzania-investment-idUSL5N18H192. Impact, and Policy Options. Washington, D.C.: Nyange, David and David Tschirley. “Agricultural Taxation International Food Policy Research Institute. in Tanzania with Special Reference to Produce Cess: IFDC (International Fertilizer Development Center). 2012. Inception Report on Key Issues and Study Design.” Tanzania Fertilizer Assessment. Muscle Shoals: IFDC. Presentation at local government area crop cess Joint Cross Border Market and Trade Monitoring stakeholder study inception meeting, Ministry of Initiative. 2015. East Africa Crossborder Trade Bulletin Agriculture, Food Security, and Cooperatives, Dar Volume 8 . Nairobi: Joint Cross Border Market and es Salaam, January 30. https://web.archive.org/ Trade Monitoring Initiative. http://www.fews.net/ web/20151117181454/http:/fsg.afre.msu.edu/gisaia/ sites/default/files/documents/reports/Quarterly%20 Tanzania/Tanzania_Crop_Tax_Study_inception_ GHA%20Cross%20Border%20Trade%20Bulletin%20 workshop_Jan2014.pdf. January%202015.pdf. PASS Trust. 2013. Private Agricultural Sector Trust Keyser, John, Henry Chalu, and Fiona Namutembi. 2010. Guidelines. Dar es Salaam: PASS Trust. Kagera-Rakai Parallel Value Chain Analysis of Coffee SAGCOT. 2010. SAGCOT Investment Blueprint. Dar es TANZANIA DTIS 2017 | 82 Salaam: SAGCOT. USAID Feed the Future Initiative. 2012. “Time to Re-Think Suleiman, Rashad A., Kurt A. Rosentrater, and Carl J. the Food Crops Export Ban.” SERA Policy Research Bern. 2013. “Effects of Deterioration Parameters Brief, USAID, Washington, D.C. on Storage of Maize: A Review.” Journal of Natural _____. 2014. “Drivers of Maize Prices in Tanzania.” SERA Sciences Research 3 (9): 147–165. Policy Research Brief, USAID, Washington, D.C. http:// Suleiman, Rashad A., Kurt A. Rosentrater, and B. pdf.usaid.gov/pdf_docs/PA00MD2P.pdf. Chove. 2017. “Understanding Postharvest Practices, World Bank. 2007. World Development Report 2008: Knowledge, and Actual Mycotoxin Levels in Three Agriculture for Development. Washington, D.C.: World Agro-Ecological Zones in Tanzania.” Journal of Stored Bank. Products and Postharvest Research 8 (7): 73–84. _____. 2009. Eastern Africa - A Study of the Regional TANEXA (Tanzania Exporters Association). 2012. Maize Market and Marketing Costs. Washington, D.C.: Problems of Official Food Export Permits to East Africa World Bank. Community (EAC) and Southern African Development _____. 2012. Africa Can Help Feed Africa: Removing Community (SADC) the Case of Tanzania. Dar es Barriers to Regional Trade in Food Staples. Salaam: TANEXA. Washington, D.C.: World Bank. URT (United Republic of Tanzania). 2011. Tanzania _____. 2016. World Development Indicators. Washington Agriculture and Food Security Investment Plan DC: World Bank. (TAFSIP) 2011–12 to 2020–21. _____. 2016. “Great Lakes Trade Facilitation Project.” Nkwame, Marc. 2014. “Tanzania: Seed Production Set to Background paper, World Bank, Washington, D.C. Increase to 300,000 Tonnes.” All Africa, November 3. http://allafrica.com/stories/201411030846.html. USAID-EAT (United States Aid Agency for International Development-Enabling Agriculture Trade Project). 2013. “SeedCLIR Tanzania: Pilot Report.” USAID-EAT, Washington, D.C. http://eatproject.org/docs/tanza- nia_seedCLIR.pdf. 6 TANZANIA DTIS 2017 | 84 Extractive Industries Tanzania is endowed with large mineral and fossil fuel deposits. It is known for its high-grade gold reserves (which have been mined since the precolonial era) and its gemstone deposits that include tanzanite (uniquely found in the country), diamond, ruby, garnet, tourma- line, sapphire, topaz, and emerald. Further, metallic mineral deposits include iron ore, copper, cobalt, and silver. Industrial minerals, such as clay, limestone, and gypsum, are being consumed by local industries, and granite can be found in various regions. In 2010, Tanzania grabbed the headline news with the discov- ery of around 47 trillion cubic feet (tcf) of offshore gas deposits in the southern part of the country, adding 8.1 tcf of onshore gas reserves (Uongozi Institute 2015). The extractive industries (EI) sector in Tanzania is made up of large-scale mining (LSM) projects, gas projects, and artisanal and small-scale mining (ASM). The LSM sector is composed of nine mines that are currently in operation: six gold mines (Geita, New Luika, North Mara, Buzwagi, Bulyanhulu, and Biharamulo), one tanzanite mine (TanzaniteOne), one diamond mine (Williamson), and one coal mine (Ngaka) that primarily supplies the "Tanzania is endowed with large domestic cement industry. Most of the gold projects are mineral and fossil fuel deposits. located in the northern part of the country (see figure It is known for its high-grade 6.1) and are owned by foreign investors. The remain- ing projects in figure 6.1 are in preproduction stage gold reserves (which have been (Kabanga nickel mine, Liganga iron-ore mine, Mkuju mined since the precolonial uranium mine, and Mchuchuma coal mine). The onshore era) and its gemstone deposits gas fields in Songo Songo and Mnazi (in shallow waters along the east coast of Tanzania and are linked via pipe- that include tanzanite (uniquely line to Dar es Salaam) already produce gas for industrial found in the country), diamond, use. In addition, to become economically viable, the offshore gas deposits require the construction of a liq- ruby, garnet, tourmaline, uefied natural gas (LNG) facility to process the gas for sapphire, topaz, and emerald." export purposes. CHAPTER 6: Extractive Industries | 85 Although minerals make up Tanzania’s largest export being women. This compares with only around 7,300 earnings, it only accounts for a small share of gross national employees in the LSM sector,4 highlighting the domestic product (GDP) and revenues. In 2015, minerals importance of the ASM sector plays in Tanzania. ASM accounted for 24 percent of Tanzania’s total exports.1 Of activities are mainly clustered around the gold and pre- the precious mineral exports, gold is by far the coun- cious stone-producing regions in the northern part of try’s largest export by value. Tanzania is the fifth-largest the country. Clashes between LSM companies and ASM gold producer in Africa, following South Africa, Ghana, miners are common. Although the ASM sector is esti- Mali, and Sudan. The existing gas projects are currently mated to produce about 10 percent of total gold produc- supplying the domestic market only, but if the offshore tion in Tanzania, much of it is not declared and therefore gas deposits are to be developed, LNG will become a bypasses the authorities.5 major export commodity. In 2015, mining contributed 4 percent to GDP. The LSM sector paid T Sh 381 billion Falling international commodity prices have also worth of taxes and royalties in 2015,2 or about 4 percent affected Tanzania. The World Bank Metals and Minerals of the country’s total internal revenue.3 index has fallen by 41 percent and gold prices by 25 per- cent since 2011.6 Apart from having an adverse impact The ASM sector is a significant source of income for on government revenues from operating mines, the a large proportion of the population, is key for pov- price downturn also meant that no new projects have erty reduction, and provides employment for women. come onstream in the last four years. This follows a According to the 2012 census, around 680,000 people global trend of mining companies looking to cut costs were employed in the ASM sector, with 27 percent by reducing operating expenses, slashing exploration FIGURE 6.1: Extractive Industries in Tanzania North Mara Kabanga Geita Bulyanhulu Biharamulo Williamson Buzwagi TanzaniteOne Songo Songo New Luika Liganga Offshore Mchuchuma Mkuju Mnazi Ngaka Source: Reprinted with permission from the Tanzania Minerals Audit Agency. TANZANIA DTIS 2017 | 86 budgets, and delaying capital expenditures. LNG prices development projects through partnerships with have fallen by around 50 percent since peaking in 2014.7 the private sector. It is a joint-venture partner in the This could further delay the final investment decision by development of industrial minerals, such as coal, iron, BG Group and Statoil to develop the offshore gas depos- nickel, and uranium. its until long-term LNG prices are more certain. • State Mining Corporation (STAMICO).  A public para- statal under the MEM that was created in 1972 to take This chapter focuses on three subsectors: gold, tanza- over selected mining projects from the NDC. Today, nite, and natural gas. These subsectors were selected STAMICO is a joint-venture partner of TanzaniteOne because gold is currently Tanzania’s largest export by (the largest tanzanite mine). TanzaniteOne has 100 value; gas will potentially become an important export percent ownership of several gold and coal mining commodity if the offshore deposits are developed; and projects, and has a role to support ASM miners. tanzanite is uniquely found in the country, which has resulted in the government imposing export restric- Another important player in the mining sector is the tions on rough stones. Special attention is also placed Tanzania Minerals Audit Agency (TMAA), which was on the ASM sector given its importance in the Tanzanian established in 2009 under the Minerals Department of context, as well as on the specific constraints affecting the MEM. This semi-autonomous institution is respon- women in small-scale and artisanal mining. sible for conducting financial and environmental audits, and to support the Tanzania Revenue Authority (TRA). This chapter is structured as follows: Section 1 outlines the institutional framework of the EI sector in Tanzania. The Mining Act of 2010 has strong local ownership Section 2 is an overview of the current market structure requirements:8 and trends. Section 3 highlights key challenges that the country needs to overcome to benefit from the opportu- • A “primary mining license” (PML) holder for the ASM nities along the value chain of the three subsectors. And, sector will only be granted to Tanzanian citizens, or to finally, section 4 provides priority recommendations to a company whose members and directors are exclu- the Tanzanian government on how the identified chal- sively Tanzania citizens. lenges may be overcome. • A “mining license” (with a capital investment between US$100,000 and US$100 million) may be granted to a foreigner, so long as at least 50 percent of the mining Institutional Framework license is held directly by a Tanzanian citizen. This section provides a brief overview of the most • A “special license” (with a capital investment above recent policies, regulations, and the main government US$100 million) requires holders to, in consultation agencies involved in the mining and the gas sectors. with the MEM, offer shares to the public through a list- ing with the Dar es Salaam stock exchange. The Mining Policy of 2009 and the subsequent Mining Act of 2010 are the principal documents guiding the In the oil and gas sector, the Petroleum Act of 2015 mining investments in Tanzania. Major international is the primary legislation guiding upstream and investments in Tanzania are regulated through mineral midstream investments. In preparation for the development agreements (MDAs) signed between the potential LNG developments, in 2015, the Tanzanian Ministry of Energy and Minerals (MEM) and the mining government passed the Petroleum Act, the Oil and companies. These are negotiated on a case-by-case Gas Revenues Management Act, and the Transparency basis. Two state-owned companies were set up dur- and Accountability Act. The Petroleum Act creates the ing and after independence (which continues to play an Petroleum Upstream Regulatory Authority (PURA), important role today): which is responsible for monitoring and regulating the upstream segment. The Petroleum Act also makes • National Development Corporation (NDC).  Estab- the Local Content Policy for Oil and Gas Industry of lished in 1962 to finance critical development projects 2014 binding, which aims to increase employment and and take over the Colonial Development Corpora- domestic value addition along the petroleum value tion. Its mission is to implement strategic industrial chain. The required participation of the Tanzania CHAPTER 6: Extractive Industries | 87 Petroleum Development Corporation (TPDC)—the Market Structure and Trends national oil company—is also made explicit in all oil and gas investments going forward. Tanzania has a model To understand the current institutional framework production sharing agreement (PSA), which provides outlined in section 1, with its strong local content provi- the basis for negotiations between the international oil sions, one has to trace how the EI sector developed over companies (IOCs) and the TPDC. time. This section provides a brief overview on how the market structure evolved, and explains what links have To develop the gas-related midstream and downstream been created along the value chain of the gold, tanza- activities, Tanzania has developed the National Natural nite, and gas sectors. Given their structural differences, Gas Policy of 2013, which subsequently led to the LSM and ASM are discussed separately. Natural Gas Utilization Master Plan (NGUMP) of 2015 under the National Energy Policy of 2015. The NGUMP Large-Scale Mining provides preliminary gas demand estimates based on household demand projections and potential industrial LSM Gold Mining Sector projects that could be developed using the natural gas Gold mining is the largest EI sector in Tanzania. It resources. These estimates are meant to guide nego- traces its history back to the country’s colonial era, and tiations with the IOCs regarding how much of the gas was put under state control through the state-owned should be reserved for domestic use. The downstream company STAMICO after independence.9 LSM gold min- activities, including those by the TPDC, are regulated ing activities gradually declined thereafter, and ASM by the Energy and Water Utilities Regulatory Authority emerged as the main gold production method, which (EWURA). Finally, the Tanzania Electric Supply Company was further supported by the Mining Act of 1979 that (TANESCO) plays a central role in the gas sector given allowed mining permits in designated areas.10 With the that the national power utility company will be the main 1986 structural adjustment program and the ensu- off-taker of the gas for power generation. ing National Investment Promotion Act of 1990, the Tanzanian government opened up the mining sector to Tanzania is a compliant member of the Extractive foreign investors. MDAs signed in the 1990s, the Mineral Industries Transparency Initiative (EITI), and is com- Policy Act of 1997, and the Mining Act of 1998 provided mitted to further increase transparency in the sec- generous tax incentives to attract international com- tor. Tanzania joined the voluntary EITI in 2009, which panies to explore mineral deposits and develop mines. requires the disclosure of revenues from the extrac- The MDAs also included stabilization clauses, which pro- tion of its natural resources (mining, oil, and gas). The vided investors with guarantees that the fiscal regime country became a compliant member in 2012, and pub- would remain unchanged for the lifetime of the project.11 lished its 5th and 6th annual reports in November 2015. This led to an explosion in gold exploration by foreign The drive for transparency was solidified through the junior mining companies, and, between 1998 and 2003, passing of the Extractive Industry Transparency and six major gold mines were commissioned (APPP 2011). Accountability Act (EITAA) of 2015, which requires for The legislation prioritized foreign direct investment, concessions, contracts, and licenses to be published, which resulted in major clashes between international and foresees for the disclosure of beneficial ownership. investors who were awarded concessions where ASM It will be necessary for subsequent regulations to clarify miners had been operating. some of the requirements in the EITAA to avoid room for misinterpretations and to align the definitions with The expected benefits from the LSM sector were not other legislations. met. Government revenue receipts from the sector were lower than expected due to the fiscal incentives Apart from the national legal framework, Tanzania is granted under the MDAs. Tax leakages due to abusive also a signatory to the World Trade Organization (WTO) transfer pricing mechanisms and limited capacity to and 20 bilateral investment treaties (BITs). As high- audit the mining companies were reported.12 Links to lighted in subsequent sections of this chapter, these the domestic economy were limited due to the country’s international commitments may be in conflict with some lack of experience and expertise in providing goods and of Tanzania’s upstream and downstream policies. services to the mining sector at a standard required TANZANIA DTIS 2017 | 88 by international investors. Ultimately, this resulted tax rate of Tanzania is comparable to peer developing- in the passing of the Mining Policy of 2009 and the country fiscal regimes in Africa and Latin America, and ensuing Mining Act of 2010, which only increased the should therefore not be too onerous on investors.14 fiscal burden and placed more importance of local Changes regarding the valuation point of royalties (from content regulations on the LSM sector. While previously netback value to gross value) and the introduction of signed MDAs did include stability clauses that exempt ringfencing requirements that disallows companies existing LSM projects from having to abide with new from offsetting costs from one project to another were regulations, public pressure led to some of the terms also introduced to reduce the opportunities for tax leak- being renegotiated.13 For example, higher royalty rates ages. While the latter may have a dampening impact on were introduced that were charged at gross value further exploration given that these costs cannot be off- instead of netback value as stipulated in the MDAs. set against producing projects, a World Bank study on Because of these changes, increasing gold prices, as transfer pricing in the African mining industry confirms well as increased auditing capacity through the creation that ringfencing is common in the majority of jurisdic- of the TMAA in 2009, tax receipts increased significantly tions where the EI sector is active.15 after 2010). Figure 6.2 shows all payments by companies including royalties, the pay-as-you-earn on incomes Although only one LSM has come onstream since the of its employees, skill development levy, withholding Mining Act of 2010 was passed, the interest in the sector tax on dividends, corporate income taxes, and other does not seem to have been negatively affected. Figure taxes (value added taxes, import and excise duties, and 6.3 shows that there was a peak of prospecting licenses service levies). being awarded in 2012, and a sharp drop thereafter. This pattern closely follows the international exploration The increased fiscal burden puts Tanzania on par with budget spending, which saw an increasing trend until its peer gold-producing countries. One of the arguments 2008, when the financial crisis caused a short slump in to justify the increase in taxes in the Mining Act of 2010 spending before peaking again in 2012.16 With the sharp was that Tanzania had established itself as a gold mining fall in commodity prices thereafter, exploration budgets jurisdiction, and hence could increase the fiscal burden of mining majors were cut across the board. It should be to be in line with peer gold-producing jurisdictions. noted, though, that since the passing of the Mining Act, A recent assessment by the International Mining for only one LSM gold project—the New Luika gold mine— Development Centre suggests that the average effective has been commissioned in 2011. FIGURE 6.2: Gold Production and Tax Payments, 2000–15 a. Gold production b. Tax payments 1.50 3.0 700 600 1.25 2.5 500 1.00 2.0 T Sh, billions 400 Tons, millions US$, billions 0.75 1.5 300 0.50 1.0 200 100 0.25 0.5 0 0.00 0.0 2000 2003 2006 2009 2012 2015 2000 2003 2006 2009 2012 2015 Corporate income tax Withholding tax Pay as you earn Gold production (tons, millions) Export value (US$, billions) Other* Skill development levy Royalties Source: Derived from the Tanzania Minerals Audit Agency. *Other taxes are made up of value-added taxes, import and excise duties, and service levies. CHAPTER 6: Extractive Industries | 89 FIGURE 6.3: Awarded Prospecting Licenses, 1990–2014 The gold value chain encompasses activities related to mining, with no smelting, or further downstream benefi- 1,400 ciation occurring in the country. As figure 6.4 indicates, 1,200 exploration, mine development, mining, and refining are undertaken in Tanzania. The gold output of the mine 1,000 site is processed into gold concentrate and gold doré. No. of licences 800 In 2014, these outputs were exported to smelters in South Africa (47 percent), India (37 percent), Switzerland 600 (9.6 percent), and Australia (5.8 percent).18 It was esti- 400 mated that, in 2013, 48 percent of global gold output went to jewelry production, with the largest consuming 200 countries being India and China. This was closely fol- 0 lowed by investment demand and central bank reserves 1990 ‘92 ‘94 ‘96 ‘98 2000 ‘02 ‘04 ‘06 ‘08 ‘10 ‘12 ‘14 with 44 percent. 8 percent of the gold output was used Source: Derived from MEM (2014). for industrial purposes due to its characteristics of electrical conductivity, malleability, and resistance to Today, gold production in Tanzania is dominated by corrosion.19 Past the refining stage, Tanzania is not sig- Acacia Mining (previously African Barrick Gold) and nificantly involved in any of these downstream produc- AngloGold Ashanti. In 2015, Acacia (operates 3 mines) tion sectors. and Anglogold Ashanti (operates the largest gold mine) produced 53 and 40 percent of Tanzania’s total gold Apart from government revenues, the biggest potential exports by value, respectively.17 contribution of the LSM gold sector in Tanzania is to FIGURE 6.4: Gold Value Chain in Tanzania SUPPLIERS Jewelry Exploration Refining 48% Smelting 8% Industry 44% Investments/ Mine reserves Mining developments Partly in Tanzania In Tanzania Not in Tanzania TANZANIA DTIS 2017 | 90 provide a springboard to a vibrant supplier sector in FIGURE 6.5: LSM Foreign and Local Procurement, 2006–15 the country. In 2015, Acacia estimated that 80 percent of 1,600 its total value creation (US$889 million) went to goods 1,400 and services payments. This compares to US$54 mil- 1,200 US$, millionm lion payroll taxes, US$38 million royalty payments, and 1,000 US$16 million of other tax payments to the government 800 in the same year.20 600 400 200 Both the Mining Policy of 2009 and the Mining Act of 0 2010 recognizes the importance of creating upstream 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 links. To promote integration of the mineral sector in Foreign procurement Local procurement the domestic economy, the Mining Policy stipulates the Source: Derived from the Tanzania Minerals Audit Agency. requirement for mining companies to procure goods and services locally, with the government supporting region of northern Tanzania. It has been mined in the and promoting Tanzanians to supply the required qual- region since the 1960s. With STAMICO taking control of ity standards. It also states the objective of promoting the mining sector in 1971, production records decreased research and development (R&D) and training, with resulting from falling grades and theft. (It is estimated both companies and the government having to support that by 1989, 30,000 artisanal miners were working in training centers to upgrade the skills necessary for the the area.) In 1990, due to the rise in artisanal miners, the sector. The ensuing Mining Act requires companies to Tanzanian government demarcated the area into four submit local employment, training, and procurement blocks: Block A was awarded to a medium-sized local plans when applying for prospecting or mining licenses. private firm (Kilimanjaro Mines), blocks B and D were awarded to ASM, and block C was awarded to STAMICO. However, the integration of the LSM gold mining sector into the local economy through supplier links, to date, Due to STAMICO’s lack of means to develop block C, the has been limited. Supplies required for exploration, mine license was sold to private investors. After continued development, and mining and refining operations have exploration and feasibility studies, in 2001, African Gem increasingly been sourced from companies that are reg- Resources Limited started its mine production in block istered in Tanzania (which explains the increase in local C. Then, in 2004, TanzaniteOne Limited acquired the procurement in the national local procurement statistics company. In 2013, to comply with the Mining Act of 2010 shown in figure 6.5). However, these companies often (which requires that at least 50 percent of shares must only act as trade intermediaries with little value added be owned by Tanzanians in the gemstone sector), the to the domestic economy. Local value added is limited owner of TanzaniteOne—Richland Resources—entered to few goods and services given that there is a scarcity into a 50:50 joint venture with STAMICO to renew the of domestic suppliers that can satisfy the high-standard mining license for a further 10 years. In 2014, Richland requirements of LSM companies. During the exploration Resources sold its 50-percent share in TanzaniteOne to phase, local firms have provided services in clearing national investors Sky Associates Group Limited. access to sites, catering, vehicle rentals, and supply and management of camps. During the operational phase, Tanzanite makes up the bulk of registered gemstone domestic companies are primarily engaged in catering, production in Tanzania, with TanzaniteOne being respon- security, transport services, and camp management. sible for about 40 percent of the declared output.22 With Where possible, mining companies have tried to out- the exception of a peak in 2007, TanzaniteOne’s tanzanite source these activities to nearby communities of the production has increased gradually over the years (see project to create employment opportunities and gain the figure 6.6). However, the grade of the tanzanite produced social license to operate.21 has fallen, and, with it, the value of the gemstones. This explains why the value of tanzanite production has LSM Tanzanite Mining Sector fallen, even though its price increased.23 The mining Tanzanite is a rare gemstone known only to be found project has been plagued with conflicts, with ASM enter- in a small area near Mount Kilimanjaro in the Manyara ing the mining concession. This has restricted plans CHAPTER 6: Extractive Industries | 91 FIGURE 6.6: TanzaniteOne Production, 2004–15 2,400 25 162.8 2,000 20 151.3 1,600 US$, millions 142.2 Kilograms 136.5 15 1,200 129.9 128.3 125.1 125.1 122.4 10 800 114.7 400 100 5 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Weight (kilograms) Value (US$, millions) Tanzanite value index Source: Derived from the Tanzanian Ministry of Energy and Minerals and Gemval. to access high-grade deposits within the concession. thought to have high-grade tanzanite pockets within its In 2013, Richland Resources declared a loss of US$4.5 concession. The reserves are estimated to extend the million “primarily as a result of the severe impact of the illegal mining on mining infrastructure and production FIGURE 6.7: Tanzanite Value Chain in Tanzania quality.”24 In its 2014 annual report, Richland Resources also cited the lack of support from the Tanzanian gov- ernment in addressing the security situation, and loss of property due to conflicts with ASM as some of its SUPPLIERS primary reasons for selling its shares of the project and exiting the Tanzanian market. In 2010, the Tanzanian government imposed an export ban on rough tanzanite over 5 grams (or 1 carat) in size to move downstream in the value chain and build up its cutting and polishing industry. It has been estimated Mining that cutting and polishing of tanzanite can increase the and expansion price of the gemstone by 30–300 percent, depending on the quality.25 To further incentivize value addition in the country, the government charges a lower royalty rate of 1 percent for cut tanzanite compared with 5 percent for rough tanzanite (only relevant for tanzanite below 5 Rough Manufacturing sorting and and Sightholders grams in size). Dealers are also required to own at least valuing polishing two cutting machines. Figure 6.7 illustrates the tanzanite value chain: the green squares represent the activities that are currently Jewelry being undertaken in the country, the orange square manufacturing represents the activities that were targeted by the export ban, while the red squares represent the activi- ties that are primarily occurring outside of Tanzania. The value chain commences at the mine site. Given that Tanzanite has only been found in a 7-square-kilometer Jewelry retailing area around Mount Kilimanjaro, it is unlikely that there will be more opportunities for mine development in the near future (unlike in the gold value chain). The focus of Partly in Tanzania In Tanzania TanzaniteOne is to expand production into areas that are Not in Tanzania Targeted by the export ban TANZANIA DTIS 2017 | 92 life of the mine for a further 15 years. Sorting and valu- environmental degradation, health and safety, and ation are done on site. Prior to the export ban, tanzanite increasing revenue collection from ASM activities, the were sold to a number of large sightholders who are government has embarked on formalizing the sector. able to make long-term sourcing commitments. Due to The Mining Act simplifies the process for obtaining an the export ban, Richland Resources built a new lapidary ASM license. Unlike in the previous mining legisla- factory at Merelani with a capacity of 200,000 stones per tion of 1998, where ASM mineral rights were issued year—sufficient to process all the company’s production, through a centralized system, the Mining Act of 2010 subject to the export ban.26 As a result, the company has decentralized the system. All PMLs can be issued established new sightholder agreements to supply jew- from the Zonal Mines Offices (ZMO). ASM mineral rights elry manufacturers with polished and cut tanzanite. It applicants can also make their applications through the is estimated that around 80 percent of tanzanite’s final District office, which is then forwarded to the ZMO for retail market is based in the United States, with China’s evaluation and issuance of a license. The requirements market growing rapidly in recent years.27 to obtain a license are not onerous, and the procedure for application has been simplified. The required pay- Artisanal and Small-Scale Mining ments include a registration fee of T Sh50,000 (US$23) The ASM sector is a major employer in rural Tanzania, and preparation fee of T Sh50,000. and its importance has increased over the years. According to the censuses, the population of ASM min- The Mining Act includes provisions for mineral rights ers has increased consistently from 150,000 miners in reserved for the ASM sector. According to the budget 1987, to 550,000 in 1996, and 680,385 in 2012. About 58.2 speech of the Minister of Energy and Minerals on May percent of the ASM population worked in gold produc- 19, 2016, the MEM has set aside two areas of 7,731 hect- tion, followed by building materials (23.6 percent), and ares for ASM activities. In addition, the government is colored gemstones (12 percent). Other mineral com- planning to set-aside ASM areas, selected in collabora- modities including copper, diamonds, and salt, accounted tion with other mining and exploration companies, of for 6.1 percent. The rapid increase can be attributed to up to 12,000 hectares during the financial year 2016–17. the economic restructuring in the 1980s that saw a lot of The Mining Act also provides licenses for processing, people being laid off from work. smelting, and refining (which were not covered by the Act of 1998). These licenses allow people who do not A significant portion of goods and services for ASM is have mineral rights to get involved in ASM activities. sourced locally. Handheld tools (such as picks, chisels, Furthermore, better guidance were included for broker hammers, crowbars, and other working tools) are fab- and dealer licenses. ricated on site or sourced locally. Rudimentary grinding mills are also fabricated in dedicated centers close to Women in Mining: ASM Gender Considerations the mining sites. More advanced drilling equipment, Women accounted for 27 percent of people engaged in reagents used for processing purposes, and generators the ASM sector. They are mostly laborers—carrying, are imported from abroad. In terms of services, pit own- crushing, and sieving ore. In search of left over gold and ers tend to contract-out blast services. Timbering works trash gemstones, women also sieve mud, or process in all underground excavations are also often out- old tailings and crushed rock, which are often contami- sourced to specialized groups. An emerging, major area nated with mercury.28 Support services, such as water of contractual work is courier service, whereby young and food retailing and accommodation are dominated men (and a woman) are hired to manually carry bags by women.29 of ore from the pits downhill to the distribution centers. Other services include catering for mine workers. At Women are less likely to be working in the pits digging times, these services are paid for by mineral proceeds for ore. Although some may express interest in being rather than money. considered for such employment, high risks associated with working in the pits—such as threats of exploitation The Mining Act of 2010 highlight efforts by the Tanzanian by mine owners, underground harassment and sexual government to formalize the ASM sector. To address assault, occupational risks, and frequent fights among problems related to conflicts with the LSM sector, male miners—tend to act as strong deterrents.30 CHAPTER 6: Extractive Industries | 93 Women are increasingly owning mineral rights—that is, region. Top-level organization revolves around the PML acquiring PMLs or concessions, as well as working as holder. The PML holder, either an individual or a com- pit owners or managers (leased by PML holders) and pany (mainly limited liability companies), is the overall as brokers or dealers. However, women’s ownership of controller of the operations, and divides the area into mineral rights in Tanzania tends to remain significantly small parcels. These parcels are then leased to the lower than men’s, because of limited understanding of so-called “pit owners” who hire the workers, and are in PML application rules and requirements, lack of capital, charge of all mining operations in the pit. Claim hold- poor mining and entrepreneurship skills, and cultural ers employ security guards (in most cases, relatives) to or traditional values. The latter, is especially strong in make sure pit owners do not understate their produc- certain areas: a 2010 case study on gender and ASM in tion figures. Earnings are obtained through a sharing Mererani31 (tanzanite-mining site located near Arusha) scheme whereby the claim holder takes 30–40 percent showed that, even when women do hold PMLs for ASM of the earnings as royalty. An additional 30 percent of plots, they usually require the services of a “shemeji” the proceeds are charged where the PML holder is also (brother-in-law) for protection, site management, and the provider of working tools and meals for the work- underground-supervision purposes. As a result, many ers. Leaving the rest of the proceeds (30–40 percent) to female PML holders face the risks of being cheated or be shared among the workers. robbed by their own shemejis, managers, and workers. And, indeed, the study revealed that the risk of tanzanite The recovered ore is manually crushed, then ground theft in Mererani is greater for women than their male using mills and concentrated by washing on sluice counterparts. More generally, women covered by the boxes. It is then panned and amalgamated to obtain a study indicated that, even if they own a PML, sometimes, gold-mercury mixture. These activities are performed their husbands make final decisions concerning the mine at processing centers located near the mining pits. In site and its related benefits. Cases of women having most cases, mine workers do not have enough capi- their ASM plot or license contested following the death tal to cover these services and therefore sell some of of their male partners by family members were also their ore to financiers (measured in sacks weighing cited. This is due to cultural beliefs that prohibit women 50 kilograms). The financiers are composed of PML from inheriting their spouse’s properties. holders, mill owners, licensed brokers, or individual business people. ASM Gold Mining Sector There are big discrepancies between mineral produc- Royalties are collected from dealers and traders rather tion figures declared by ASM to the Tanzanian govern- than at the mine level—which creates a strong incentive ment with those estimated by independent studies. Figure 6.8 shows the officially-declared gold production FIGURE 6.8: Declared ASM Gold Production, 2004–15 and associated values by the ASM sector for the years 6,000 140 2004–15. However, a recent baseline survey carried out in the Geita region, which is home to the largest-ASM 120 5,000 production center, estimated that official statistics only account for 2.5 percent of actual production in 2012.32 100 4,000 The majority of ASM gold operations in the Geita region US$, millions 80 Kilograms were found to be illegal, and PML holders were under- 3,000 declaring their production figures to avoid paying royal- 60 ties. Consequently, official statistics underestimate the 2,000 actual total quantity of gold produced in the country 40 by ASM. 1,000 20 The value chain and level of organization among 0 0 licensed and unofficial ASM operations are similar. 2004 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 Figure 6.9 shows an example of the value chain and Weight (kilograms) Value (US$, millions) trading routes of the ASM gold operations in the Geita Source: Derived from the Tanzanian Ministry of Energy and Minerals. TANZANIA DTIS 2017 | 94 FIGURE 6.9: Typical Value Chain of ASM Gold Sector PML holder Pit owners Miners Small brokers (choma choma) Local brokers, Dealers Local pit financiers Gold brokers (Mwanza/ wholesale/ (processing (Geita/Katoro) export Dar es Salaam) site) Jewels local Jewels fabrication in retailing Geita Main trading route Rare or less trade Source: Derived from MTL (2013). Note: ASM = artisanal and small-scale mining; PML = primary mining license; and DSM = Dar es Salaam. for under-reporting by this group. There are three types gold dealers in 2013. Only 4 of the 11 registered gold of buyers. Unlicensed small buyers that travel to remote dealers in Mwanza renewed their licenses for the year mine sites to buy gold, who are supported by larger bro- 2013–14. There is little information available about how kers, which may or may not have a license. In the Geita much gold from the ASM sector goes through official region, it was estimated that in 2013, there were around channels. Even for official dealers and traders, there 4,500 small buyers, 1,600 unlicensed brokers, and 155 li- is a strong incentive to under-report purchases and censed brokers.33 This shows the importance of the role sales, as the royalty rate of 4 percent is applied at this that small buyers play in the ASM gold value chain. The level. There is anecdotal evidence that the Zanzibar number of unlicensed brokers is also a testimony to how route is used for exports to Dubai, which is the favored much gold is traded informally. The third group of buy- export route by those looking for less strict cus- ers is made up of traders and dealers, who export gold. toms inspections. Mwanza, Dar es Salaam, and (to a lesser degree) The gold price along the ASM value chain is deter- Zanzibar are the three main trading centers for gold in mined by the international market. Big dealers in Tanzania. In Dar es Salaam, there were 22 registered Dar es Salaam are said to pay a price of around 3–4 CHAPTER 6: Extractive Industries | 95 percent lower than the London Bullion Market prices thus affecting the overall production of the poorly- for 22-carat gold. This further suggests that under- equipped small-scale miners. reporting is a common practice, given that a 4 percent royalty would wipe out any profits. Major upcountry gold Production is very volatile as tanzanite mineralization is dealers, who receive credit from Dar es Salaam, make found in “pockets.” Operations among pits vary signifi- their margin from purchasing gold from miners based cantly depending on the mining equipment used and the on the price recommendations from the buyers in Dar number of labor employed. Similarly, prices for tanza- es Salaam on that particular day. nite vary as these are dictated by the uniqueness of the particular stone or gem. This explains the volatile nature Tanzanite ASM Sector of tanzanite production by the ASM sector outlined in As in the ASM gold sector, the ASM tanzanite sector figure 6.10. employs significantly more people than the large-scale operator TanzaniteOne. It is estimated that around 4,000 Significant value addition can be achieved by the tan- people are directly employed in the ASM areas com- zanite ASM sector with minimum capital investment. At pared with 600 at TanzaniteOne under the operation of the pit level, the organizational aspects of tanzanite pro- Richland Resources (Mayala and others 2016). duction by the ASM sector is similar to that of gold. The differences become apparent at the sales, processing, The ASM-tanzanite sector is more organized than the and trading stages. Miners have a right to sell to anyone ASM-gold sector, but production and revenues are even who can offer the best price for a particular stone rather more volatile. In tanzanite mining, one can easily dis- than entering into a price agreement with financiers. tinguish between “artisanal” miners and “small-scale” Rough tanzanite is sold directly by operators to brokers miners. Most of the small-scale tanzanite miners are and dealers. For these groups, the only processing formal entities (registered, licensed), and are in the involved is the sorting of stones to grade them accord- Tanzanian government’s taxation network. The majority ing to quality, which determines the selling and buy- of artisanal-mining participants are informal and work in ing price. Gemstone cobbing (the process of trimming collaboration with small-scale mining firms. rough gemstones to remove attached rocks or cracked parts) is practiced by several brokers and dealers in ASM in Mirerani is restricted to blocks B and D. the course of sorting and grading, which may increase Although these two blocks employ almost the same the value of the stones by 45–200 percent.34 Care must number of people, production from block B represents be taken not to destroy the good-quality stones thereby more than 95 percent of the total ASM tanzanite produc- reducing its market value. About 30 percent of the bro- tion. This can be associated with the fact that mining kers in Dar es Salaam and 60 percent in Arusha practice started in block D, and the pits have gone very deep, cobbing of tanzanite before selling. FIGURE 6.10: Declared ASM-Tanzanite Production, 2004–15* 9,000 35 7,500 30 162.8 25 6,000 151.3 US$, millions Kilograms 142.2 20 4,500 136.5 129.9 128.3 15 125.1 125.1 3,000 122.4 114.7 10 1,500 100 5 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Weight (kilograms) Value (US$, millions) Tanzanite value index Source: Derived from the Tanzanian Ministry of Energy and Minerals. *Because of frequent underreporting and smuggling, this figure should be analyzed carefully. TANZANIA DTIS 2017 | 96 Price signals for the tanzanite sector are less transpar- 1,516 MW (out of which gas-fired power amounted to ent than for gold. Licensed owners still use the tradi- 711 MW, thermal power 243.4 MW, and hydropower 561 tional approach of presenting gemstone samples to MW).41 The national strategic plan for energy targets big brokers and dealers in search of market indicative 2,000 MW of new gas-fired electricity power generation prices. Despite this approach by the lease owners, it by 2018.42 was established by a baseline survey in 2012 that min- ers with erratic (or unreliable) production usually have In 2010, significant offshore gas resources were discov- problems selling their products, and, in most cases, they ered in southern Tanzania. The BG Group, in partner- end up getting lower prices from local gemstone bro- ship with Ophir Energy and Pavilion Energy, discovered kers. While most mine workers and brokers sell their about 17 TCF of recoverable gas resources. Statoil, in tanzanite in rough form, most PML holders and mineral partnership with ExxonMobil, discovered about 22 TCF dealers have established lapidaries in Arusha for cut- of natural gas in the same area.43 A consortium of these ting and polishing before exporting. Arusha is the main IOCs have proposed to build a 10-million-tons-per-year gemstone-trading center in East Africa; it buys up the (MTPA) LNG plant in partnership with the TPDC to majority of tanzanite from the ASM sector. develop the gas fields.44 Gas Sector Originally, gas production was set to start in 2020, but As of April 2016, gas initially in place in Tanzania is 57.25 regulatory roadblocks and the fall of international gas TCF; it is composed of 10.12 TCF in onshore discoveries prices have delayed the final investment decision. Since and 47.13 TCF in deep offshore discoveries.35 Natural 2014, LNG prices have plummeted due to numerous gas gas is currently produced in Songo Songo Island and exporting projects coming onstream and lower than Mnazi Bay with more than 80 percent being used for expected demand from major Asian customers like power generation. The Songo Songo gas field (operated China and Japan.45 As a result, several LNG projects by PanAfrican Energy) delivers gas to Dar es Salaam worldwide were abandoned or put on hold. Against this via a 225-kilometer pipeline that was completed in July backdrop, Tanzania’s LNG project is unlikely to come 2004, when the project started commercial production. onstream within the originally planned timeframe.46 The 150 million cubic feet (MMCF) of gas produced per day is primarily used for power generation at Songas The potential upside of the delay in gas production Ubungo power plant in Dar es Salaam.36 The plant gen- coming onstream provides Tanzania with more time erates about 180 megawatts (MW). Some of the gas also to prepare its economy to take advantage of potential supplies a local cement plant (Wazo Hill), as well as 34 opportunities along the gas value chain. (Figure 6.11 other industrial companies and power plants in Dar es visualizes the gas value chain in Tanzania.) Although Salaam (see annex 6A).37 Gas production at the Songo there are suppliers to the current oil and gas opera- Songo gas field is expected to increase to 185 MMCF per tions, the upstream links are few and shallow, similarly day once Orca Exploration Group finishes its infrastruc- to the mining sector. The majority of gas is currently ture work on the Songo Songo offshore platform.38 being used for power generation and (to a lesser extent) for cooking and for the production of fertilizers. LNG, The Mnazi Bay gas field (operated by Wentworth compressed natural gas (CNG), methanol, and gas- Resources Ltd. and Maurel & Prom Co.) started produc- to-liquid (GTL) are industries currently not present in tion in 2006, and supplies the Mtwara power plant. In Tanzania but are targeted by the Gas Master Plan. September 2014, a US$1.3 billion transnational pipeline was completed to connect the Mnazi Bay gas field to Dar Preparing the economy to benefit from both upstream es Salaam. As a result of increased off-take opportuni- and downstream links takes time. Upstream links to ties, production has increased and is about to reach suppliers require a careful assessment of the gas sup- 70–80 MMCF per day to supply TANESCO’s power plants ply chain opportunities and support mechanisms to pre- in Dar es Salaam (Kinyerezi I, Ubungo II, and Symbian).39 pare local businesses to meet the standards required by With this project, the Tanzanian government aims to the IOCs. Promoting downstream links to make use of address the current power shortages.40 According to the gas domestically requires a careful assessment of TANESCO, in 2015, Tanzania’s installed capacity was the economic feasibility and extensive coordination and CHAPTER 6: Extractive Industries | 97 FIGURE 6.11: Gas Value Chain in Tanzania According to a World Bank-European Union-UKAID funded study,47 construction of the LNG plant will result in the creation of a significant number of direct, indirect, and induced jobs. Majority of these jobs are expected SUPPLIERS to be created in the areas (Mtwara, Lindi) near the con- struction site, and will be composed mainly of unskilled and semi-skilled labor. Certain support services will likely be based in Dar es Salaam and other urban cen- ters. The study estimates the cost of the LNG project to be around US$15–20 billion over 7 years, with the bulk of the procurement spending occurring between the 3rd and 6th years. The potential for local content (under Gas production Gas processing Power facility generation current capacity) is estimated at around 8 percent of the total project cost. With targeted technical support to small- and medium-sized enterprise development, this local capture may approach 20 percent, generat- ing approximately US$800–1,100 million in domestic Fertilizer value added (profits plus labor payroll), approximately US$750–1,000 million in locally purchased goods, and an average of 4,000–5,000 local jobs during the project’s life (with a peak of 6,500 in the 4th year). Eleven sec- tors were identified in the study as having the highest Cooking and potential for local content. In terms of goods sourced cooling domestically, the largest potential lies with the supply of bulk materials, such as sand, aggregate, and cement. Industries that already exist in the country (such as food production, catering, and business support services) Compressed could supply the gas projects if they are supported to natural gas increase their organizational and technical capacities to be able to comply with the stringent quality and delivery standards. The study also identifies some high-skilled opportunities for local subcontracting in the fabrication Methanol and and installation of supporting infrastructure for the LNG gas-to-liquid trains and tanks. The study concludes that the objec- tive of a local content strategy should be to develop transferable skills that suppliers can apply beyond the construction phase of the LNG plant and which will help Liquified Export diversify the economy. natural gas The construction of the Uganda-Tanzania oil pipeline In Tanzania Partly in Tanzania may provide an opportunity to scale-up locally procured Targeted by the Gas Master Plan goods and services prior to the development of the LNG facility. As previously mentioned, the potential upshot of negotiation with potential investors. Further, construc- the delay in the investment decision of the IOCs is that tion of the required infrastructure (such as connecting it provides additional time to develop skills to increase pipelines) will also take time to be built. local content during the construction of the LNG plant. In March 2016, Uganda chose the Tanzania export route There is significant potential for the domestic economy for its oil. The 1,400-kilometer long pipeline will con- to benefit from the construction of the LNG plant. nect Uganda’s western oil region with Tanzania’s Tanga TANZANIA DTIS 2017 | 98 port. The project estimated to cost around US$4 billion this section are: (1) a weak business-enabling environ- and is expected to create around 15,000 jobs during ment that constraints the EI sector and its links; (2) an the construction phase.48 This project could create suf- unclear regulatory framework for upstream links; (3) ficient demand for Tanzanian businesses to scale-up downstream beneficiation policies that may have unin- production and invest in skills and technology upgrad- tended consequences; (4) state-owned companies that ing. These capabilities could then serve the LNG and have conflicting roles and are lacking financial self-sus- domestic gas businesses. However, if both projects were tainability; (5) difficulty to formalize the ASM sector; and to be developed simultaneously, there would likely be (6) the lack of regional coordination and integration. a significant shortage of businesses that could service them. This would drive-up prices for in-country services Weak Business-Enabling Environment and reduce the opportunities to maximize local content. Constraints in the EI sector and its Links The uncertainty of government reimbursements con- On the downstream side, Tanzania’s Gas Master Plan strains financial planning for EI companies in Tanzania. considers several domestic uses for the gas to spur Key obstacles for the mining sector raised by the economic development. Natural gas has been used for Tanzania Chamber of Minerals and Energy include the power generation and industries since 2004, and, to erosion of fiscal incentives, the lack of stability and a much lesser extent, by institutions and households predictability of duties and tariffs, and protracted reim- starting in 2009. Ninety percent of Tanzania’s energy bursements.50 Although the effective tax rate resulting requirement for cooking and heating are supplied from from the Mining Act of 2010 are in line with international traditional fuels, mostly biomass involving firewood gold-producing jurisdictions, as previously highlighted and charcoal, which contributes to a high-deforestation in section 1, unpredictable duties and reimbursements rate of around 350,000 hectares per year. Tanzania also are problematic. According to the MDAs, the mining imports fuel for energy and transportation, methanol sector benefits from value added tax (VAT) exemptions (50 tons per year) for the petrochemical industry, and and fuel levy reductions, which is not uncommon for 90 percent of its fertilizers (with only 10 percent being the sector. However, mining companies have had pro- produced domestically).49 Thus, while LNG exports tracted disputes with the TRA regarding delayed and are the preferred option for the IOCs’ given off-take contested reimbursements. According to the industry, and price certainty, the Tanzanian government aims to reserve natural gas for domestic use as an oppor- TABLE 6.1: Gas Demand Projections in the Gas Master Plan, 2015–45 tunity to reduce deforestation, lower its reliance on User Demand (tcf) imports, improve access to energy, and foster economic Domestic development by attracting industries that use gas as a Electricity 8.0 primary input. There are various projects listed in the Households 0.5 Gas Master Plan including a fertilizer plant, a methanol Institutions 0.1 plant, a dimethyl ether plant, a CNG plant, a GTL plant, Compressed natural gas vehicle 0.6 and a methanol-to-gasoline plant. Furthermore, the Industries 3.6 Gas Master Plan outlines the opportunity of an iron- Petrochemicals steel complex using direct-reduced iron process. In its Fertilizer/Ammonia 0.7 30-year demand analysis (see table 6.1), the Gas Master Methanol 1.1 Plan includes all domestic projects, and estimates Gas-to-liquid 1.8 that total domestic demand will be higher than LNG Dimethyl ether 0.3 (considering 2 LNG trains of 5 mtpa each) and regional Methanol-to-gasoline 0.4 pipeline exports. Total 17.2 Export Liquefied natural gas 11.1 Development Challenges Pipeline 3.1 Total 14.2 Tanzania faces a number of challenges that prevents Total domestic and export demand 31.4 the EI sector from further contributing to the country’s Source: Derived from Tanzania’s Gas Master Plan, 2015. economic development. The key challenges outlined in Note: TCF = trillion cubic feet. CHAPTER 6: Extractive Industries | 99 the reimbursement decisions are slow and inconsistent Clear and transparent property and mining rights with arbitrators and law courts that cannot be relied encourages investment. Equal treatment for all inves- upon. This has created uncertainty, and the disputes tors and due process for removing or amending min- have led to increasing hostility between the Tanzanian ing licenses and property rights are essential building government and investors. The reimbursement claims blocks for attracting direct foreign investment. Recent are significant as highlighted in the recent corporate developments regarding the revoking of a mining tax payment agreement between the TRA and Acacia license from Tancoal and reallocating it to Dangote Mining, which puts VAT reimbursements for the com- Cement raise concerns over possible special treatment pany at US$80 million.51 and risk a deterioration in the business environment. While the agreements with Tancoal and TPDC are not in Unreliable power supply has increased operating the public domain, and it is not clear whether appropri- costs for mining projects. Even mining projects that ate compensation and tariffs will be paid, however, the are connected to the power grid have installed backup apparent special arrangements for an individual compa- generators due to power outages. In 2011, African ny is concerning. Specific details are outlined in box 6.1. Barrick Gold estimated that power-related problems resulted in a loss of production of 35,000–40,000 Unclear Regulatory Framework to ounces of gold due to plant downtime and additional Create Upstream Links maintenance. As a result, heavy fuel oil power The local content legislation for the mining sector lacks generation capacity were installed at the mine sites.52 a definition of what is meant by “local content,” and The Geita mine produces its own power, with fuel there are no targets, monitoring mechanisms, incen- costs making up a significant percentage of its total tives nor sanctions to achieving local content plans. This operating costs.53 It is estimated that if TANESCO were lack of definition may result in different interpretations able to guarantee mining companies reliable power regarding the development of upstream links and lead access, the average mine would be able to save around to potential misunderstandings among stakeholders. US$15 million per year, and new mines would become The high proportion of local content in figure 6.5 sug- more competitive.54 These mining projects could gests that TMAA’s definition includes all products that provide important anchor costumers for TANESCO to are sourced from companies that are registered in further develop Tanzania’s electricity sector. However, Tanzania. However, it could be argued that value addi- for this to occur, TANESCO needs to improve its tion in Tanzania is necessary to qualify as being local. precarious financial situation and regain the trust of the This would lead to a very different picture regarding private sector. the proportion of domestically-sourced goods and Skills deficiencies and the lack of access to infrastruc- ture and finance, constrains the opportunities in the EI BOX 6.1: Coal Mining License Reallocation sector and its links. Tanzania’s educational system is weak, which has resulted in severe skills shortages. On March 11, 2017, the Ministry of Minerals and Energy awarded There is a particular shortage of certified artisans and a ten-square-kilometer coal mining license to Nigeria’s Dangote technicians. Among the existing suppliers, business Cement after President John Magufuli had issued an ultimatum to government officials in order to secure an area in the coal rich management skills are deficient in terms of bookkeep- region of Ngaka. The concession was part of Tancoal’s license, ing, financial management, tax compliance, reporting, which is a joint venture between Australian Intra Energy Corp (70 documentation, and tendering. Suppliers also suffer percent) and the state owned National Development Corporation from restricted access to finance; poor access to infra- (30 percent). This comes after Dangote Cement had suspended structure; noncompliance with health, safety, and envi- operations at its new Mtwara cement plant in December due to high power costs. The president has also ordered the Tanzania ronmental standards, as well as industry and product Petroleum Development Corporation to supply the cement plant standards.55 This has led to late deliveries (or no deliv- with gas from its nearby developments. Negotiations were unsuc- eries at all), poor quality of deliveries, and inability to cessful prior to the president’s directives, but it was reported that honor contracts, which in turn has increased the cost of consensus has been reached shortly thereafter. doing business for the mining and gas companies oper- Source: Aziana Post (2017). ating in Tanzania. TANZANIA DTIS 2017 | 100 services. Furthermore, without a framework in place to supplies.56 While the Mining Act of 2010 has increased implement increasing local content, it will be difficult to the import duties after the development stage of a achieve the objectives of such policy. project, these rates are still lower than those paid by local companies. The Petroleum Act of 2015 provides the legal frame- work for local content in the gas sector, but some pro- The joint-venture provision (a type of local content visions need clarifications, and various legislations measure widely seen as effective in promoting domes- needs to be aligned. In preparation for the LNG devel- tic value addition) is convoluted in the Petroleum Act. opments, the Tanzanian government passed the Petro- Sections 220 (2) and (3) stipulates that when goods and leum Act of 2015, which makes the Local Content Policy services are not available in Tanzania, “such goods shall for Oil and Gas Industry of 2014 binding. However, there be provided by a company which has entered into a joint is a lack of alignment between the two documents, and venture with a local company,” which shall own a share it is unclear how they are compatible with the PSAs of at least 25 percent of the joint venture. However, signed with the IOCs in 2013. The requirements and according to subsection 220 (9), the definition of a local principles are more extensive in the Local Content Pol- company implies that it can be a joint venture whose icy and in the PSA model than in the Petroleum Act. For Tanzanian participation is at least 15 percent. The com- instance, in the Petroleum Act, the license holder and bination of these provisions could result in a 15 percent contractor must submit various planning documents “in joint venture, which itself only has a 25 percent interest accordance with an approved local content plan.” How- in a joint venture providing the goods and services.57 ever, the local content plan itself is not specified. In con- trast, the model PSA describes (clearly) what needs to be included in the local content plan—details of the pro- BOX 6.2: Joint Ventures: A Policy Tool to Create Upstream curement of Tanzanian goods, materials, and services; a Links detailed plan and program for recruitment, employment, and training of Tanzanian nationals; and a plan for the A World Bank-European Union-UKAID (2015) study recommends transfer of skills, knowledge, competence, and know- joint ventures as a way to leverage opportunities in the construc- tion of the liquefied natural gas facility. Specifically, opportunities how to Tanzanian nationals—and stipulates that the plan lie in concrete works, electrical works, equipment hire, and should be submitted to the TPDC for approval. Simi- scaffolding. The study suggests for local firms to team up with larly, the Local Content Policy outlines a collaborative globally-recognized concrete manufacturing companies where exercise with the industry to develop baseline informa- the local firm could finance its equity, be committed to an opera- tion on current capabilities for Tanzanian-owned com- tional role in the contract delivery, and, possibly, acquire capital assets after the delivery of the project. panies to become suppliers. The Petroleum Act could refer to the Local Content Policy and indicate that the Encouraging joint ventures is also the approach that Trinidad and procurement plan should be based on the results of this Tobago—a country that is often considered as having successfully increased local content within its oil and gas sector—has adopted. exercise, which is key to any successful implementation In its Local Content and Local Participation Policy Framework of local content requirements. The Local Content Pol- of 2004, implemented through product-sharing contracts signed icy also makes clear that preference should be given to with an international oil company (IOC), Trinidad and Tobago goods “produced” in Tanzania by local companies while requires that when an IOC wants to conduct design engineering the Petroleum Act includes goods “available” in Tanza- work in the country, an international engineering firm is invited to incorporate in Trinidad and Tobago through a joint venture with a nia. Consequently, the Petroleum Act allows the pro- local engineering firm. curement of imported goods to meet the local content obligations of the contractor. In Malaysia, foreign companies who want to supply goods and services to the upstream sector are required to do so through an agency agreement or through a joint-venture agreement There are conflicting trade policies that may hinder with a local company. In the agency agreement, the local domestic procurement. Foreign investors in the EI sec- company is less committed financially and operationally than tor benefit from VAT and import duty exemptions or in the joint-venture agreement, but, in turn, benefits less from reductions. However, these are not extended to potential capacity development. local suppliers. Thus, locally-fabricated supplies have a Sources: World Bank-European Union-UKAID (2015) and World Bank (2016). competitive disadvantage over internationally-sourced CHAPTER 6: Extractive Industries | 101 Such result would go against the intended outcome of can make advantages conditional on the realization a local content provision that is deemed to be of great of training and R&D programs.62 Lines b, c, and f are importance to increase domestic value addition. particularly relevant to Tanzania, and can prevent the implementation of several local content-related require- The WTO commitments and BITs Tanzania signed up ments of the Mining Act (Art. 10(4)(e), 29 (3)(e), 34 (l)(f), to constrains the policy space for the government to 41(4)(g-h), 42(1)(d), 44(d)(f), 49.2(f-h), 50.1 (c), 52), the 2013 impose binding local content regulations. Tanzania’s Petroleum Model Production Sharing Agreement (Art domestic legal framework is subject to international law, 19-21) and the Petroleum Act (Arts. 220-222). which is regulated by the WTO agreement and by bilat- eral and multilateral agreements. WTO’s Trade-Related Downstream Beneficiating Policies May Investment Measures (TRIMs) prohibit: requiring com- Have Unintended Consequences panies to purchase or use products of domestic origin; The Tanzanian government is particularly interested in limiting the amounts of imported products that an enter- creating downstream links from its tanzanite and pro- prise may purchase or use depending on the volume spective gas resources. The major challenge related to or value of local products that the enterprise exports; the enforcement of tanzanite value addition domestically restricting foreign exchange necessary to import (for is that it may lead to increased smuggling. As for the example, restricting the importation by an enterprise development of the natural gas reserves, one of the key of
products used in local production by restricting its negotiation points with the IOCs will be how much of access to foreign exchange); and restricting exports the gas needs to be allocated to the domestic economy. through quotas. As a least-developed country, Tanzania This will be a fine balancing act to encourage the IOCs to is required to implement TRIMs by 2020, to the extent move ahead with their proposed investments, which will consistent with its individual development, financial and primarily be based on LNG exports, and leveraging the trade needs, and administrative and institutional capa- gas for power and diversification purposes domestically. bilities, subject to notification to the General Council. Tanzanite Export Ban May Result in Smuggling and Tanzania has signed 20 BITs of which 11 are in force. Requires Government Support Initiatives The 2013 BIT with Canada is the most restrictive.58 It Although the Tanzanian government has a strong lever- prevents Tanzania from requiring foreign investors age to develop the cutting and polishing industry in from Canada and beyond59 “(a) to export a given level Tanzania (see box 6.3), downstream processing require- or percentage of a good or service; (b) achieve a given ments for tanzanite come at a cost. The necessary infra- level or percentage of domestic content [undefined60]; structure and skill base to cut and polish tanzanite are (c) purchase, use or accord a preference to a good pro- costly and will have to be funded by the government, by duced or service provided in its territory, or purchas- the investor, or by a combination of both. The Tanzanian ing a good or service from a person in its territory; (d) government has received donor financing to develop the relate the volume or value of imports to the volume or Tanzania Gemological Center in Arusha to offer various value of exports or to the amount of foreign exchange courses on lapidary, gemology, jewelry design, jew- inflows associated with that investment; (e) restrict elry manufacturing, and gem carving. As noted before, sales of a good or service in its territory that the invest- TanzaniteOne has built a cutting and polishing facility ment produces or provides by relating those sales to to process its share of tanzanite. In both cases, costs the volume or value of its exports or foreign exchange are at least partly borne by the state. Donor funding earnings;
(f) to transfer technology, a production pro- could be allocated elsewhere, and the investments by cess or other proprietary knowledge to a person in its TanzaniteOne are tax deductible, thereby reducing the territory; or
(g) to supply exclusively from the territory company’s tax payments. The bigger concern, however, of the Party a good that the investment produces or a is the impact of the export ban on illegal smuggling. No service it provides to a specific regional market or to the royalties are paid on smuggled stones. Furthermore, world market.”61 these are sold at a discount thereby affecting global market prices for tanzanite. The additional requirement Tanzania cannot make advantages (undefined) condi- to cut and polish tanzanite domestically may push min- tional on the realization of b, c, d, e, either; it, however, ers to smuggle larger tanzanite out of the country. TANZANIA DTIS 2017 | 102 BOX 6.3: Policy Options to Move Downstream in the EI Value Chain Apart from improving the general business environment that may policy measures are likely to make the jurisdiction less attractive make it profitable for downstream activities to develop organically, to potential investors and should therefore only be pursued by there are three policy measures available to governments that countries that have strong leverage—either because of a large want to encourage downstream beneficiation extractives industries. domestic market for the product, or because the resources are These include export restrictions, such as the rare-earth export so attractive that investors will continue to be interested, or both. restrictions by China); making downstream processing a determinant The tanzanite sector has good prerequisites to pass this test, given for allocating concessions, such as assigning a certain proportion that the tanzanite cannot be found in other countries, and because of the cutting and polishing of diamonds domestically to renew gemstone demand is thought to be inelastic and therefore less price DeBeer’s diamond concessions in Botswana; and using incentives to sensitive than other commodities. make downstream industries viable, such as incentives granted by Mozambique to attract the Mozal Aluminum smelter). The first two Source: CCSI (2016). Since the export ban took effect, more tanzanite is cut the last 22 years since the original agreement with in Tanzania, but the impact on smuggling is unclear. It DeBeers to allocate a proportion of output for domestic is still too early to make assessments on the impacts of processing, it is estimated that it is still two to three the tanzanite-export ban. Up to now, the number of gem times more economic to cut and polish diamonds in cutters has increased to 350 in 2013, compared with 180 India than in Botswana.65 in 2003.63 Most gem cutters are self-employed, offering their services to mineral brokers, who in recent years Tanzania’s export ban on rough Tanzanite may be at have started to sell cut and polished gemstones. The odds with its WTO commitments. The WTO prohibits majority of lapidaries are found in Arusha. Exports of quantitative restriction on exports, which includes bans. certified cut stones have also increased since the ban. A recent example of a ruling against export restrictions However, a baseline survey found that nearly 95 percent in the EI sector is the case of China. In 2012, the United of all mined gemstones were still being exported in States, the European Union, and Japan filed a complaint rough form in 2013,64 suggesting that the introduction against China for its measures related to the exportation of the certificate of origin and declaration of Mirerani as of the rare earths tungsten and molybdenum. In 2014, a controlled area seem to have had a limited impact on the WTO ruled against China and, as a result, the export the smuggling of tanzanite. quotas had to be removed. While the tanzanite sector may be of less strategic importance than rare earths Supporting policies to develop the cutting and polishing for importing countries (which makes it less likely for sector that also address the smaller players, needs another country to take Tanzania to the WTO appellate to be put in place. Now, there is only one small gem- body), the Tanzanian government should still be aware cutting training school in Arusha, which does not have that this is a risk of this policy. the capacity to train sufficient people to cut and polish the rough tanzanite being produced. While TanzaniteOne Recently introduced export bans on exporting unpro- has a direct government stake in the project through cessed ores aimed at encouraging downstream pro- STAMICO, and is therefore likely to benefit from support cessing may have an unintended negative economic initiatives, smaller players may not qualify. It was impact on investment and growth for both large scale reported that import duties on cutting and polishing and artisanal mining. The 2011 feasibility study commis- equipment, for example, are still in place. Furthermore, sioned by the Tanzania Minerals Audit Agency (TMAA), labor laws to employ foreigners have recently become outlines several constraints that make a copper concen- more stringent, making it more difficult to employ gem- trate project in Tanzania economically unviable66. If this cutting expertise from abroad to teach Tanzanians. The is the case export bans aimed at kick-starting in-country Botswana experience shows that supporting policies processing may not result in the expected benefits in are likely going to be required for a long time to make terms of value addition and employment. For small the downstream sector more competitive. Even after scale miners, without large balance sheets the ban significant support by Botswana’s government for could result in the companies going under. Furthermore, CHAPTER 6: Extractive Industries | 103 smelting requirements may render marginal projects Even if there were such clauses, they would not be eas- unviable resulting in less exploration and investments ily enforceable. Fourth, international financiers will be in the affected sectors. There is also the possibility that hesitant to finance a project with unallocated gas supply three large-scale nickel projects, that are scheduled given that they require sale guarantees that warrant the to commence in the next few years, may be affected67. back-payment of the loans. Furthermore, a decline in investor confidence may have a longer lasting impact on the wider economy. See box The domestic gas allocation needs to be agreed in 6.4 for a more specific outline of the new regulations. advance and should not be altered thereafter. Egypt’s case (see box 6.5) illustrates that when IOCs sell LNG Domestic Allocation of the Offshore Gas Deposits Will through long-term contracts, governments should not Be One of the Key-Negotiating Points with the IOCs try to capture gas for domestic use, which in the origi- The offshore gas reserves in Tanzania will be developed nal investment agreement was allocated for export. based on off-take agreements made for the export of Governments should commit to a certain portion of LNG. The projects will not be viable when only relying gas (whether quantified in volume or percentage)68 for on national demand because there are several risks domestic use and off-take this gas for the agreed com- for the IOCs in supplying the domestic economy. First, pensation. These issues need to be agreed upon before domestic gas demand can fluctuate if local power plants the final investment decision, when flexibility is highest. and distribution lines are not operating reliably at the If domestic gas is to be increased over time on a sliding- contracted capacity. Second, local long-term demand scale basis to accommodate the progressive increase projections are often aspirational. As such, there is the in demand, the transporting infrastructure will have to risk of these estimates not materializing. Third, domestic be developed for a larger capacity than initially needed, prices are often controlled by the Tanzanian govern- which will affect the economics of field development. In ment. Usually there are no take-or-pay clauses in the exchange of such flexibility, investors usually request sales contract with government-agency buyers, and subsidies and incentives. Alternatively, the government gas companies are reliant on the utilities to pay on time. could choose to build up domestic gas infrastructure at BOX 6.4: Copper and Gold concentrate export ban On March 3, 2017, Tanzania imposed an unexpected ban on deserve”f and may be used to increase the government’s bargaining unprocessed copper, nickel and silver ores to “…make sure that power in the protracted tax dispute with Acacia mining, which is the mineral value-addition activities are carried out within Tanzania.”a main company affected by the ban.g and h A special investigation of AngloGold Ashanti’s Geita and Acacia’s North Mara mines are mineral concentrate found in containers at the Port of Dar es Salaam, unaffected by the ban, as these sites export gold doré. Although, Inland Container Depot and the mine sites found significantly higher 45 percent of Acacia’s Bulyanhulu and 55 percent of the Buzwagi levels than had been declared to the Tanzania Minerals Audit Agency. mine revenues are banned from export, resulting in an estimated In light of the large under declaration of concentrate and the related revenue loss for the company of US$1 million a day.b This comes at tax loss, a special committee recommended to maintain the ban on an inopportune time for Acacia mining, which has been in merger concentrate. Acacia mining has committed to cooperate with the negotiations. Endevour mining has withdrawn from merger talks government to resolve this issue. since.c It is estimated that the export ban could shut in 240,000 ounces or more of gold production in 2017. The ban would make The result of this measure, however, will not only affect Acacia Bulyanhulu unprofitable and materially affect Acacia’s financials as mining, but also small-scale miners and potential future investments. a whole.d Apart from Acacia mining, small-scale mining companies It is therefore recommended that such trade policies are not used for that export concentrate were hit by the ban. At least 60 containers of negotiation purposes with individual companies. copper and seven containers of nickel from small-scale companies have been seized by port authorities resulting in large losses a. URT (2017) according to Tanzania Small-Scale Miners Association chairman.e b. Morcombe (2017). c. Yeomans (2017). While the ban suggests a long-term government measure to pursue d. West (2017). e. Citizen (2017). downstream beneficiation domestically, the prime minister’s recent f. Citizen (2017). statement indicates that this is a temporary measure to “satisfy g. Sanderson, Hume, and Aglionby (2017). ourselves if the tax we get from the business is what we actually h. Reuters (2016). TANZANIA DTIS 2017 | 104 government should also assess under which minimum BOX 6.5: Why Domestic Gas Allocation Should Not Be gas allocation to LNG exports the IOCs will accept to Changed after an Agreement: The Case of Egypt operate. By some accounts, an allocation of 11.1 TCF (out Egypt provides an example of liquefied natural gas (LNG) projects of 31.4 TCF) might not be sufficient for IOCs to achieve being shut down due to not meeting the international oil compa- economies of scale out of a dry gas field (the pres- nies’ (IOC) and buyers’ contractual demands. In 2005, the country ence of liquids would have improved the economics of started exporting LNG from a two-train plant operated by the the project).69 Egyptian LNG (ELNG) consortium, which was composed of the BG Group and the state-owned Egyptian General Petroleum Corpora- tion. However, the rise in domestic demand caused the Egyptian In its analysis, the Tanzanian government will also need government to progressively divert gas from LNG exports to to prioritize gas monetization projects. Currently, the the domestic market. This led to the shutdown of the Damietta Gas Master Plan lists a number of projects that would LNG plant,a which prevented the plant from honoring its export increase power demand. The government should priori- contracts. The fall in LNG exports resulted in declining export revenues and with the country subsidizing the gas for the domes- tize the projects that would have larger positive impacts tic market, it soon ran short of money to pay the agreed offtake on the economy along with a review of its viability. price. In response, the IOCs reduced exploration and production Power-generation projects have several advantages activities. In 2014, ELNG shut down entirely. over other domestic gas uses. First, electricity produc- Source: U.S. Energy Information Administration (2015). tion projects tend to have the second best netback value a. The Damietta Plant is owned and operated by Segas, a joint venture of the Spanish utility Unión Fenosa (40 percent), Italian oil company Eni (40 percent), and the Egyptian after LNG.70 Second, the availability of competitively companies Egyptian Natural Gas Holding Company and Egyptian General Petroleum priced and reliable power source is critical to improve Corporation (10 percent each). Until the shutdown, the plant was only being supplied with gas from the Egyptian grid. the business environment and attract other industries (including those proposed in the Gas Master Plan). Third, the populations in the gas-rich regions of Mtwara a later stage from revenues received from LNG exports. and Lindi are among the poorest with the lowest access Disregarding the approach used, it is important to retain to electricity rates. Securing access to power will be the LNG attractiveness. Extensive discussions, consulta- fundamental to attain the social license to operate and tions, and negotiations are needed to agree on the best mitigate the risk of production disruptions.71 course of action about the domestic gas use. CNG projects have the advantage of being viable at To be well equipped for the domestic gas allocation smaller scales, thereby creating an opportunity to pro- negotiations, the Tanzanian government needs to review gressively replace expensive and polluting alternative gas demand projections, and assess under which mini- fossil fuels. PanAfrican has, for instance, piloted applica- mum gas allocation for exports the IOCs will be willing tion of CNG to vehicles, hotels, and industries. CNG is to move ahead with its investments. The Gas Master also an interesting gas option for transportation that Plan of 2015, with its demand projections based on travel distances up to 2,000 kilometers.72 Mozambique population growth and potential industrial projects is a has piloted it with the Matola Gas Company delivering step in the right direction, but further in-depth feasibility CNG to industrial customers via trucks.73 Some of the studies are needed given that the plan is aspirational. TABLE 6.2: Gas Demand Scenarios versus Discovered Reserves This is recognized in the Gas Master Plan. According Consumption (tcf) Against Remaining reserves/ to the current gas demand and supply analysis, which 38.5 tcf production – 2045 assumes that 70 percent of the discoveries will be Scenario 2015–35 2015–45 (%) (years) recovered (about 38.6 TCF), the available reserves can Base case suffice to serve both the export and domestic demand 2 trains 14.9 31.4 81 3.82 envisioned by the Gas Master Plan for 30 years in 3 trains 16.9 36.1 94 1.28 almost all scenarios. The Gas Master Plan concludes 4 trains 17.8 39.8 103 (0.66) that it is important to “promote development of discov- High case 2 trains 15.9 33.4 87 2.57 ered reserves and investment in the infrastructure to 3 trains 17.9 38.2 99 0.19 deliver natural gas to the identified market.” While the 4 trains 18.9 41.8 108 (1.63) development of infrastructure will certainly enable the Source: Tanzania’s Gas Master Plan, 2015. use of the gas by the domestic economy, the Tanzanian Note: TCF = trillion cubic feet CHAPTER 6: Extractive Industries | 105 other projects in the Gas Master Plan are only likely to Furthermore, production and marketing should be be commercially viable if planned at the regional level streamlined—as is done in the diamond sector—by limit- (see regional section). ing the release of tanzanite and influencing its market prices. Although TanzaniteOne has long had an interest The State-Owned Companies’ Conflicting Roles and in regulating tanzanite sales by acting as an intermedi- The Financial Self-Sustainability is Not Guaranteed ary that buys up rough tanzanite from surrounding As highlighted in the institutional framework section, the mines, there is little incentive for the ASM miners to pro- state-owned companies and the regulators that are par- mote TanzaniteOne as a monopoly buyer and seller. By ticularly relevant for Tanzania’s EI sector are STAMICO bypassing the government and smuggling undervalued and NDC in mining, TPDC and PURA in the upstream tanzanite out of the country, these unlicensed-tanzanite and midstream gas sectors, and EWURA and TANESCO sales have had an adverse impact on licensed sales.75 in the downstream gas sector. Because NDC is not These conflicting interests and roles by STAMICO will involved in the gold, tanzanite, and gas subsectors, make mediation between the two parties difficult. this study has not closely reviewed the state-owned company. However, the challenges regarding its con- STAMICO is subsidized by the Tanzanian government. flicting roles as a commercial entity and as a regulator The budgetary allocation for the state-owned company also seem to be relevant, as highlighted in the Natural has increased over the last years to support mining Resource Governance Institute’s (NRGI) recently pub- operations that are running at a loss. Employment lished transfer-pricing study.74 numbers at TanzaniteOne have doubled since STAMICO took over its operations.76 Although STAMICO’s strategic STAMICO’s conflicting responsibilities may adversely plan for 2014–15 to 2018–19 foresees that “the sources impact the economic benefits obtained from the projects of finance for the corporation include government it is involved in. STAMICO’s objectives include: subventions, loans from financial institutions, and own revenue from investments. Government subventions • To increase investment in the mining industry and are provided in an interim period to help STAMICO take promote corporate services and image; off and eventually become a self-sufficient corporation • Increase provision of exploration and drilling services which will contribute to the government basket,”77 the as a tool to identify prospective areas for mining and government has yet to define on what basis these sub- income generation; ventions will be reduced. The efficiency of state-owned • Transform the ASM sector into a well-organized, companies is highly dependent on where the funding mechanized, productive, and environmentally comes from, given that there is less of an incentive responsive subsector; to run profitably when the state will buffer potential • Improve human resource management and losses. Furthermore, clear rules regarding revenue administration; and streams are critical to lower opportunities for revenue • Address the cross-cutting issues including, but mismanagement. STAMICO scores low (31st out of not limited to, HIV/AIDS pandemic, environmental 45 state-owned companies) in NRGI’s 2013 Resource conservation, and gender mainstreaming in the Governance Index, which measures the institutional and mining activities. legal setting, reporting practices, safeguards and quality controls, and the enabling environment.78 These objectives conflict with one another. For example, owning 50 percent of TanzaniteOne and being the opera- The Petroleum Act of 2015 enables the TPDC to focus on tor of the only large-scale tanzanite mine, STAMICO commercial functions, but there are still provisions that should aim to run operations as efficiently and profit- attribute noncommercial roles. The Petroleum Act sepa- ably as possible. At the same time, the state-owned rates the commercial function from the regulatory func- company is meant to support the ASM sector. One of tion, both of which were held by TPDC prior to the Act. the main constraints faced by TanzaniteOne has been This has been welcomed by the IOCs.79 However, there regular trespassing of artisanal miners into block C, are some provisions that need clarification. There is an leading to loss of value and endangering operations unclear use of the word “exclusive” about TPDC’s pow- for both TanzaniteOne employees and artisanal miners. ers, which creates a risk of conflicting interpretations TANZANIA DTIS 2017 | 106 of the roles of TPDC, PURA, and EWURA, and may lead the 1990s, when concessions were awarded to foreign to accountability challenges.80 Section 10(2) grants investors and resulted in evictions of artisanal miners. TPDC “exclusive rights over natural gas midstream and Acacia’s and AngloGold Ashanti’s mining projects have downstream value chain,” while Section 45 gives TPDC been at the center of violent conflicts with artisanal min- “exclusive right over all petroleum rights granted.” ers trespassing the concession areas. Multiple deaths These are conflicting statements. It is also unclear how have been reported over the years. For the LSM sector, TPDC can be a license holder and partner in oil projects these conflicts have resulted in loss of property, dis- with no conflict of interests and without hurting the rupted production, higher operating costs due to secu- effectiveness of PURA.81 Furthermore, the requirement rity reasons, and international reputational damage. At for state participation is also unclear due to the contra- the Luika gold mine, an average of 2–6 mine stoppages diction between Section 219 and Section 45. The former are experienced per year due to ASM conflicts. In 2009, suggests a participating interest of 100 percent, while African Barrick Gold claimed that illegal mining resulted the latter 25 percent. Even a 25-percent interest might in the loss of 2,400 hours’ worth of production.85 An be high given “(i) the current human and financial capac- ICMM study concluded that ASM conflicts are “possibly ity of TPDC, (ii) the practice with existing offshore gas the single most important factor that negatively colors projects, and (iii) other financial obligations, including the attitudes to the international mines.”86 Reputational risk royalty and the profit oil/gas split.”82 is primarily related to security-related incidents and environmental impacts, which are difficult to trace back TANESCO’s precarious financial situation has increased to the source. For example, there have been allegations costs to do business for the mining sector and may be a of mercury pollution by the LSM sector, though, their key constraint when negotiating the domestic gas alloca- processing facilities do not use mercury as an input. tion with the IOCs. As outlined in the business-enabling environment subsection (section 3), the mining sector The Sustainable Management of Mineral Resources has had to invest in backup-power generation due to Project by the World Bank is currently working together unreliable power supply, which has resulted in increas- with Acacia and AngloGold Ashanti to improve the rela- ing capital and operating costs. TANESCO’s poor finan- tionship between the LSM and ASM sectors. Among cial situation is one of the main contributors for deficient other activities, the project supports ASM geological, maintenance and investment in the Tanzanian-power processing, health and safety, responsible supply chain, generation and transition infrastructure, which has led and gender mainstreaming activities for registered ASM to insufficient power supply and load shedding.83 operations in areas surrounding the LSM concessions.87 TANESCO’s reliability and financial sustainability will Environmental and health problems related to the ASM also play a key role when negotiating the domestic allo- sector are devastating. While the pits are small and cation of gas with the IOCs. Successful utilization of gas individually may not have a significant impact, at the for domestic power generation assumes that TANESCO cumulative level, ASM regions present a major environ- will be a credible and financially-sustainable utility of- mental and health concern. To access the mining areas fering reasonable prices for the gas (as closer to market and service its operations, large areas of forests have price as politically feasible), paying on time, investing in been cut down. Water contamination results from leak- distribution and generation infrastructure and maximiz- ages of heavy metals from the processing areas. The ing the certainty of revenues to the gas companies. This use of explosives also contributes to contamination of requires TANESCO to regain the trust of the private sec- surface and groundwater. The amalgamation of gold is tor and address its financial deficits and operating loss, often carried out in open, and leads to mercury being which amounted to US$139 million in 2012, bringing cu- disposed directly into soils. With most of the mining mulative losses to US$503 million or 2 percent of GDP.84 areas being surrounded by major rivers and lakes that provide fish for neighboring and downstream villages, Formalization of the ASM Sector is Proving Difficult these practices have also raised health concerns for Conflicts between the LSM companies and displaced people not directly involved in ASM. The health impacts ASM communities have been chronic and long last- on those directly working in the ASM sector are even ing. Hostilities between these two groups date back to more severe. Underground drilling, ore loading, and CHAPTER 6: Extractive Industries | 107 surface crushing and grinding are all dry processes that sector outweighs the capacity to formalize. According to generate dust, which can lead to respiratory problems the censuses carried out in 1996 and 2011–12, between and lung disease. The direct exposure to mercury vapor 1996 and 2012, an average of 8,200 people per year may be fatal. entered the sector, and a total of 25,723 PMLs were issued to ASM (an average of 1,600 licenses per year); ASM operations have been linked to negative social thus, for every formalized miner, an additional 4 informal impacts and human rights violations continue. Most miners enter the ASM sector (figure 6.12). The fact that ASM areas have high rates of crime and violence. Local licensed miners do not develop their areas (instead, authorities are ill-equipped to respond with increased they lease it out to individuals who in turn hire teams to pressures on welfare services and policing require- mine and pay royalty to the license owners) complicates ments leading to self-regulation. There have been the formalization process. With the legislation not bind- extensive reports of human rights violations in the form ing license holders to invest into the operations, they of child labor. In 2003, it was found that 2,723 children, instead hire other people to carry out mining and give between the ages of 12 and 15 years, were working them a share of the production. This leads to exploita- in the tanzanite mines of Mirerani (ILO-IPEC 2003 and tion of those who are hired by licensed mineral rights Urassa 2007). The majority of children were employed holders and force them to seek higher earnings from in the reprocessing of tailings, manual crushing and informal operations. grinding, and washing on sluice boxes. These activities are thought to have the worst health impacts with expo- As such, despite the increase in the number of licenses sure to mercury. Although there have been improve- issued, most operations on the ground are still regarded ments following intervention and awareness campaigns as being informal, because they do not follow safety, by various stakeholders, child labor continues to be a occupational health, or environmental regulatory major concern. requirements. In addition, the chaotic nature within a licensed area due to a large number of pits run by indi- The ASM sector faces a chronic shortage of capital. The vidual investors in an uncoordinated manner, makes numerous requirements, such as collateral, explora- it difficult for the government to collect the due rent. tion results, a project feasibility study, and a registered Based on these scenarios, it can be concluded that more business name cannot be met by most miners. Whilst than 50 percent of the ASM operations can be catego- financial institutions have expressed willingness to pro- rized as informal operations.88 vide such services; no programs are tailored to meet the financial needs of the ASM sector. The lack of direct While the Mining Act of 2010 could be improved in some access to credit finance, poor business and project man- areas (particularly on the environmental provisions),89 agement skills, makes investment very difficult. The pre- the major problem of formalization is limited awareness vious administration tried to address this by providing and lack of enforcement of the rules. Whilst the condi- loans to individual groups, such as equipment purchase tions for the formalization of ASM activities have been loans or hire- purchase schemes. Three companies simplified and are not difficult, there is a general lack of were provided with such loans in Chunya (in southern awareness of the procedures necessary to achieve this. Tanzania), Singida (in central Tanzania) and Geita (in north-western Tanzania). Although ASM equipment has FIGURE 6.12: Primary Mining Licenses Issued, 1999–2013 been imported for these schemes, to date, none of them 5,000 are working and this facility has been closed. The failure of these schemes can be traced back to a lack of knowl- 4,000 No. of licences edge in dealing with ASM operators, the lack of miners 3,000 being able to pay the hiring rates, poor infrastructure in 2,000 mining areas and vandalism. 1,000 Although the number of licensed ASM activities have 0 increased over the years due to the changes in the 1999 2001 2003 2005 2007 2009 2011 2013 Mining Act of 2010, the number of new entrants into the Source: Derived from the Tanzanian Ministry of Energy and Minerals. TANZANIA DTIS 2017 | 108 Furthermore, given the limited number of auditors not have a secured tenure, nor the capital or the neces- responsible to enforce the Mining Act, activities go sary technologies to access high quality and mineable unmonitored. The holder of a broker’s and dealer’s resources; they also cannot use their mineral rights license, for example, is to keep full and accurate records as collateral to access credit, or to enter into joint of all transactions undertaken, and they must submit ventures with larger, more established (licensed) part- them to the relevant authorities, according to the law. ners. Finally, they tend to be excluded from strategic There are also clear regulations that foresees the policy interventions such as government-funded credit nonrenewal of these licenses if there is lack of compli- schemes (which generally target formal ASM miners ance. The environmental regulations set a number of in possession of a license), and are thus condemned to standards that limits pollutant discharging, limits the operate in a trap of informality, subsistence-level prof- use of cyanide leaching, rehabilitation requirement prior its, and very limited growth opportunities. This, in turn, to abandonment, and sets a fine of up to T Sh1 million severely limits their ability to contribute to government (US$465), or imprisonment for a period not more than revenues through royalty payments. Policy interven- six months for breaching these standards. However, the tions aimed at regulating and formalizing the ASM sec- enforcement of these provisions has been poor, thus tor, and related services such as credit, technology, and allowing dealers to only declare the minimum returns environmental safety support, would need to ensure required to maintain their licenses, and environmental that the entire range of ASM operators is reached, degradation and health impacts still being a major con- including artisanal miners that are unlicensed—espe- cern in the sector. cially women. Short of this, those interventions run the risk of only benefitting the more established ASM entre- Artisanal mining and small-scale mining activities are preneurs, whilst leaving (female) operators behind. not distinguished, which results in plot allocations for artisanal miners being too large and makes policy tar- Beyond formalization, other difficulties currently affect- geting difficult. Artisanal miners are thought to employ ing Tanzanian women in ASM: First, they usually exhibit manual, low-technology mining, while small-scale min- limited education and poor mining and entrepreneurial ers use some degree of mechanization. As such, small- skills, including budgeting (financial skills) or the ability scale mining activities tend to be larger operations with to prepare a business plan—this forces many, includ- greater sophistication and higher revenues. The Mining ing PML holders, to rely on others—especially men—for Act of 2010 stipulates that the maximum plot size cov- support, and subsequently exposes them to cheating. ered by a PML is 5 hectares for building materials and In addition, mineral transactions in ASM rural sites are 10 hectares for other minerals. This plot size is compa- often not transparent, with limited information on value rable to other countries for small-scale activities, but and prices available to miners, which is particularly is too large for artisanal mining. As a result, artisanal damaging for women, who are usually not skilled in license holders (including women) often divide their plot the grading of minerals, are unable to meet the cost of into several smaller pits, and subleasing them to (unli- accessing more reliable markets, and therefore may censed) pit operators, from whom they informally col- have to settle for unfairly low prices. Limited ownership lect royalties. Due to staffing constraints and/or to the of and/or control of resources and assets (capital, land, remoteness of certain artisanal sites, the government house, tools, and so on) also affects women miners’ is unable to closely monitor those arrangements—as a ability to access credit, making them more vulnerable result, it may fail to collect royalties itself thus facing to exploitative arrangements in the mining site. For significant revenue losses. instance, because of the dependence on ball mills for ore processing, many women are forced to share the A number of challenges specifically affect women min- proceeds instead of payment for the costs involved. ers. Many women do not hold PMLs but are employed Health risks are also particularly alarming for female as mine workers: sometimes in activities within formal ASM miners. For instance, lack of modern equipment or enterprises of PML holders such as established small- protective gear exposes them to dust in ore processing, scale mines, or as individual operators who must link or to hazards associated with the direct handling of mer- with other actors along the mineral value chain such cury for gold amalgamation. Finally, ASM women face as crushers or mineral brokers. As a result, women do double vulnerability in case of resettlement or reloca- CHAPTER 6: Extractive Industries | 109 tion due to LSM projects, because they often do not have Regional coordination is required to address tanzanite formally-recognized land and/or mineral rights, they are smuggling. International control mechanisms such usually exposed to exclusion without compensation. as the Kimberley Process and the conflict minerals provisions, track diamonds, gold, tungsten, cassiterite, Lack of Regional Coordination Limits the and wolframite. Other minerals such as gemstones Opportunities to Create Links from the EI Sector and tanzanite are left out. Tanzania has introduced a More upstream links could be captured at the regional certificate of origin for tanzanite to curb smuggling. level with increased integration. Countries in the However, without the recognition of other countries Southern African Development Community (SADC) and for the certificate and proper enforcement, this effort the East African Community (EAC) have put in place (or will not have its intended outcome. Given that a lot are working to develop) local content policies for the of tanzanite is being smuggled through Nairobi, the EI sector. Although the 2012–32 EAC Industrialization Tanzanian government, through the MEM and its Policy and the 2015–63 SADC Policy, indicate an indus- Kenyan counterpart, are discussing ways to address trial development roadmap for the region, the strate- the smuggling of tanzanite. Apart from recognizing the gies fall short of providing mechanisms to coordinate certificate of origin, the two governments discussed national local strategies in the EI sector. This is a the alignment of royalty rates charged on rough stones missed opportunity given that the Regional Economic that do not have a certificate of origin. An agreement on Communities (RECs) in Africa could enable access to these points would make it less attractive to smuggle larger markets for suppliers and make regional pro- tanzanite through Nairobi. curement more viable for EI companies. Alignment in the definition of local content, for example, could simplify The East African Power Master Plan notes that member the operating requirements imposed on EI companies in countries have built their power systems in isolation the region. Allowing EAC suppliers to count towards the from each other. Although there are some intercon- local content targets of its member states could reward nectors, the volume of power trade is negligible and local content achievements at the regional level. This “exporting parties have frequently been unsuccessful would require countries to steer away from a local defi- in their commitments to deliver the power in accor- nition that refers to “local-local” or national level, and dance with their contractual obligations because of enter in reciprocal agreements, which often only RECs deficits in their systems.”92 Significant cost savings can can broker. be achieved by cooperating with neighboring countries on regional power projects. The power-infrastructure RECs could also play an increasing role in trade and funding gap of Tanzania is estimated to be around 1–5 investment negotiations. International trade agreements percent of its GDP.93 Pooling energy resources through often ban the recourse to local content provisions to regional power trade can reduce this funding gap. improve the domestic economy. By negotiating those Operating cost savings in the South African Power agreements on behalf of its member states, RECs could Pool (SAPP) and East African Power Pool (EAPP) are increase individual states’ collective bargaining power estimated to be in the order of 5 percent and 6 percent, and ensure that trade agreements do not contravene respectively, if energy trade occurred whenever the development policy objectives.90 benefits outweigh the costs associated with system expansion.94 These cost savings result from cheaper Lastly, RECs could help build a pool of workers at hydropower making up a larger proportion of the the regional level that companies could draw from energy mix, a reduction of losses due to power outages, by: promoting the harmonization of training curricula and greater diversification of the energy mix reducing and certification across the region, the creation of the potential for disruptions. These costs savings would technical partnerships between countries to ensure the result in the interconnector investments being recov- exchange of technical experts, the co-financing of R&D ered in under a year in the SAPP, and over a 3 to 4 year and technology centers, and the facilitation of labor period in the EAPP.95 Box 6.6 highlights the importance mobility through less bureaucratic labor law and work of Tanzania role in the Zambia-Tanzania-Kenya intercon- permit procedures.91 nector project. TANZANIA DTIS 2017 | 110 to South Africa. The study asserts that while it is pos- BOX 6.6: The Zambia-Tanzania-Kenya Interconnector: To sible to build the infrastructure incrementally to keep Facilitate Power Trade Between the SAPP and the EAPP overall initial investments low, the longer-term total The interconnector is proposed to connect Pensulo (in Zambia) costs of this solution would be higher, and the gas pro- and Isinya (in Kenya), covering a distance of 1,600 kilometers, ducers would not be assured long-term bulk markets. with a capacity of 400 megawatts. This initiative is led by the The study thus asserts that (1) the regional demand Common Market for Eastern and Southern Africa-East African helps make the business case for a substantive alloca- Community-Southern African Development Community tripartite tion of the gas to East African domestic markets, and (2) body. In 2014, the energy ministers from Kenya, Tanzania, and Zambia signed a memorandum of understanding that outlined the materialization of this regional demand will come key milestones to ensure the completion of Phase I of the Zambia- from the construction of a regional backbone trans- Tanzania-Kenya interconnector by the end of 2016, and the com- mission network. missioning date for Phase II for December 2018. The memorandum requires each country to build the power infra- Some of the projects identified in the Gas Master Plan structure within their borders, with Zambia being responsible of Tanzania are only likely to be commercially viable if for the overall coordination of the project. The countries are also these investments are coordinated at the regional level. required to establish trading mechanisms. In December 2015, Zambia commissioned the 381-kilometer Kasama-Pensulo section The Gas Master Plan includes investments in a GTL for a cost of US$153 million. The construction of the 442-kilo- plant to save on fuel imports. However, GTL plants are meter Singinda-Iringa (Tanzanian) section is expected to be very expensive projects, which have only been imple- completed in June 2016. However, progress for other sections of mented in Qatar, Malaysia, and South Africa. As such, the transmission line has been slower. There is still lack of fund- ing for the Iringa-Mbeya-Tunduma (Tanzania) Nakonde-Kasama- they require a large demand to be viable that only the Pensulo-Kabwe (Zambia) sections. regional market can meet. Apart from the demand ques- tion, the viability of a GTL plant is dependent on high Source: Trademark Southern Africa 2012. Notes: SAPP = South African Power Pool; EAPP = East African Power Pool. oil prices, which makes these projects unfeasible in the current price scenario even at the regional level. While there is technological progress to build small modular At the regional level, there may be sufficient gas GTL reactors to satisfy the demand of small markets, demand at competitive prices to warrant investment the profitability of these still need to be proven. in a transnational pipeline transmission network. By analyzing the potential costs of a gas backbone trans- Similarly, fertilizer projects needs to be coordinated mission network across eight countries (Mozambique, given that many neighboring countries also hope to Malawi, Tanzania, Kenya, Uganda, Rwanda, Burundi, and attract large investments. Tanzania produced fertilizer Ethiopia) originating in the gas fields of Mozambique and in Tanga, but this project shut down in 1991.96 The avail- Tanzania, and modeling gas prices that are competi- ability of increased gas reserves has renewed inter- tive with what is currently being paid by consumers in est in operating an ammonia-based fertilizer plant in the region, Demierre and others (2014) suggest that Kilwe. Wentworth Resources and Maurel & Prom have “demand projections, estimates of infrastructure cost, shown interest in a combined methanol and urea plant and consumption estimates offer market opportunities in Mtwara.97 Neighboring Mozambique is also looking for gas at prices competitive to LNG exports.” to attract investors in fertilizers as set out in its Gas Master Plan, and Kenya is already producing fertilizer. For the baseline scenario, the required capital invest- ment is estimated at US$57 billion for an infrastructure As for methanol production, both Tanzania and system that brings gas to the city gate at a cost of US$8 Mozambique are considering such plants, as they can per million British Thermal Units. The study recognizes promote industrialization by serving as a feedstock for that the system would take time to fully develop, but the petrochemical industry. In Mozambique, Insitec of even at a 25-percent penetration rate as a primary Mozambique (25 percent) and GigaMethanol of Germany resource in the energy system, the pipeline infrastruc- (75 percent) have put together a US$3.5 billion proposal ture is projected to be economically viable. When fully to produce 3.5 million tons of methanol per year.98 This developed, the system could deliver 2.9 TCF per year to is enough to cover Mozambique’s needs and leave a sur- the 8 countries in the region and an additional 1.3 TCF plus for exports. CHAPTER 6: Extractive Industries | 111 While the previous paragraphs highlighted the potential Addressing the Constraints opportunities that arise from regional integration to fur- ther develop the EI sector and upstream or downstream This section provides recommendations to address the links in Tanzania, cooperation at the regional level is of- identified constraints previously outlined. Apart from ten hampered by political economy constraints. Energy recapping the identified constraints and the suggested security issues are a big constraint to the development actions to address them, the entities responsible, poten- of regional pipelines and interconnectors, given that tial indicators to measure success, the difficulty and countries do not want to depend on their neighbors for potential payoff of implementing the suggested actions, energy supply. In the context of regional-content poli- and existing initiatives are listed in table E.1. cies, countries with a less-developed supplier base, such as Tanzania, will face competition from countries that Recommendations have more experience in supplying the EI sector, such as Implement a transparent and predictable taxation Zimbabwe, Zambia, Kenya, and South Africa.99 Over time, regime and revenue management system. While the these countries have built more sophisticated skills; effective tax rate from the Mining Act is in line with the mining companies operating in Tanzania often have Tanzania’s peer gold-producing countries and therefore long-term relationships with suppliers situated in those should not be too onerous for the gold LSM sector, the countries, which has been facilitated by the lowering of government should streamline VAT and duty reimburse- transportation costs.100 There is also stiff competition ments to guarantee financial predictability and clarity for large-scale downstream industrial projects, which of processes. The government should continue its drive makes agreement as to where it should be built difficult. to increase transparency of the sector and its efforts to improve audit capacity. Progress at the regional level is slow and, often, only occurs when national interests of the most powerful Coordinate with the EI sector and implement support countries within the region align. The “implementation policies backed by resources to accomplish the objec- of regional initiatives takes place when in line with key tives set out in the policies. In order to achieve intended ‘national interests’ as defined by the ruling elites”101 results of the local content regulations and the export of the regional hegemons. Within the EAPP and the ban on tanzanite, the Tanzanian government needs Intergovernmental Authority on Development (IGAD), to work closely with the EI sector to determine which Ethiopia is a key stakeholder, while South Africa plays a targets are viable and how they can be achieved. Skills dominant role within SADC. The alignment of interests development and vocational training programs, access is also dependent on the areas of cooperation. Peace to finance schemes, and other support programs have and security, for example, has been more successfully to be backed by resources. Regulations without the driven at the IGAD and the African Union given that backing of financed support services that builds a political leaders understand that inaction can lead to skilled industrial base will result in EI companies prefer- constant instability and violent conflicts. In contrast, ring to pay fines for not meeting local content targets regional integration in the areas of trade, industrial- and traders to smuggle tanzanite. Within the gas sec- ization, energy, and gender remains aspirational and tor, capacity should be built to benefit from the pipeline appear less urgent. While potential electricity exports and LNG construction. While the fall in international often see the long-term benefits of regional energy gas prices may delay the investment decision for a LNG pools such as the EAPP and SAPP, priority is placed on plant, the government should move forward with sup- the development of their domestic energy sectors in the port programs to prepare domestic suppliers given that short-term. However, there are successful regional gas it takes significant time to build the necessary expertise. infrastructure initiatives such as the West African Gas The strategy should be based around building trans- Pipeline that connects Nigeria, Benin, Togo, and Ghana, ferrable knowledge and skills that can also be used in or the gas pipeline from Mozambique (Temane and other sectors post-LNG construction phase. The recent Pande) to South Africa (Secunda). As highlighted in box decision of Uganda to move forward with the Tanzania- 6.7, the Mtwara Development Corridor may be a proj- gas-pipeline export route may provide an opportunity ect where interests align and which may help to drive to sequence these investments and provide continuous regional integration. opportunities for trained workers. TANZANIA DTIS 2017 | 112 BOX 6.7: The Mtwara Development Corridor: A Potential Driver for Regional Integration The corridor-based approach helps stakeholders pool resources, Wentworth Resource’s prospective gas-based methanol and urea and partner behind a narrowly defined corridor system. Components plant, the proposed iron and coal projects in Mchuchuma and Liganga, of a corridor include hard infrastructure, soft infrastructure, and and the offshore oil and gas developments in Northern Mozambique, rules of operation. If successful, such initiatives can build trust and as well as serve as a transit point for timber exports from Malawi and cooperation among participating countries, create opportunities copper, gypsum, and manganese exports from Zambia (table B6.5.1). leading to “spillovers” for broader transport sector reforms, and The Tanzanian government is exploring the idea of turning Mtwara’s lead to the harmonization of transport programs. The Mtwara Economic Development Zone into a Special Economic Zone to develop Development Corridor is regaining momentum due to the offshore gas Mtwara as a regional hub. As discussed previously, the success of this developments, which foresees the expansion of Mtwara port. corridor will depend on the alignment of interests between regional champions and between public and private interests. By itself, the The corridor involves the governments of Tanzania, Mozambique, Tanzanian government cannot ensure the success of this corridor; Malawi, and Zambia, and impacts around 14 million inhabitants. In however, it can facilitate conversation and coordination among the addition to servicing the gas industry, the corridor could service actors that will benefit from this it. TABLE B6.5.1: Cargo Assessment for Mtwara Port New cargoes Confirmed with Existing cargoes stakeholders Potential Not viable • Container – cashew • Container – import general • Construction and project • Biodiesel – Jatropha • Offshore supply base cargo cargo cargoes • Woodchips • Cement exports • Gas-related cargoes – • Hard wood • Gas-related cargoes – liquefied natural gas exports Methanol and urea plant • Gypsum exports • Transit traffic • Nickel • Container transhipment • Uranium/gypsum/copper Source: URS analysis. Note: Table cells with red text are cargo flows included in the cargo forecasts to form basis of the Financial and Economic Appraisal of the project while the cells with green text are future cargo flows to be considered for later phases of development at Mtwara port. Sources: Interview with Bruce Byiers and Jan Vanheukelom, August 2012 Feasibility Study for the Expansion of the Existing Port at Mtwara, October 2012. Restructure TANESCO to ensure that the private sector Align trade policies with local content and downstream- regains trust in the public utility company. TANESCO beneficiation policies. Domestic suppliers should not plays a critical role in reducing energy costs for the LSM pay higher import duties for items that the international sector, and increasing power reliability for companies EI companies (or international suppliers) are exempted along the EI value chain. It will be crucially important for from—such duties will make domestic supplies less the negotiations of the domestic gas allocation with the competitive. Furthermore, the Tanzanian government IOCs given that it will be the off taker for power genera- should not impose tariffs on goods that are required tion. TANESCO will need to improve its dire financial for cutting and polishing tanzanite to support the policy situation for it to be considered a credible offtaker. objective of domestic processing. The aim should be to make processing as competitive as possible to make Clarify the local content regulations. The local content smuggling less profitable. legislation for the mining sector does not define what is meant by local content, and there are conflicting Ensure that local content policies do not conflict with provisions between the local content policy and law for international commitments. Tanzania is part of the petroleum when it comes to joint ventures and the sub- WTO, and it has signed numerous BITs that restrain it mission or implementation of local content plans. These from using certain local content measures and export policies need to be aligned in the updated regulations quotas. In particular, the Canada-Tanzania BIT has sev- currently being drafted to avoid misunderstandings and eral restricting provisions. Given that the performance achieve the intended policy objectives. requirements are extended to investors “of a nonParty CHAPTER 6: Extractive Industries | 113 in its territory,” the treaty could be used by investors current procedures to access mineral rights are simple, from other jurisdictions. The Tanzanian government they are not known to the majority of Tanzanians. The should aim to either renegotiate the Canada-Tanzania Zonal and District offices that are strategically located to BIT, or make local content regulations not binding to reach the participants are usually poorly resourced and avoid the possibility of companies taking Tanzania to are therefore not effective. A program could be aired court through this BIT. on Swahili radio, television, and through newspapers targeting the wider public. Such mechanisms could also The Tanzanian government should assess the viability be used to raise awareness around health, gender, and of the proposed downstream projects within its Gas environmental issues, as well as informing tanzanite Master Plan. One of the most important negotiating miners about pricing trends. Support services, such as points between the government and the IOCs is how training, credit and ASM equipment leasing schemes, as much gas will be reserved for the domestic market. If well as improved geological information access in desig- the government asks for too much, the IOCs will not nated areas, should be offered to reward formal opera- move forward with the investment, but if it asks for too tions that comply with the regulations. little, it will be a missed opportunity to drive economic development. Therefore, it is of the utmost importance Enforcement mechanisms should be decentralized to to study the viability of the projects proposed in the Gas improve monitoring and oversight of ASM activities. Master Plan, regional supply opportunities and decide Enforcement of ASM regulations should be decentral- on a negotiating strategy with the IOCs. ized to be effective. Currently, the sector is administered from the office of the Commissioner for Minerals in Minimize the potential for conflicting interests within and Dar es Salaam through its regional and District offices. among state-owned companies, and put in place clear Although there are more than 20 offices throughout the financial rules for these companies. STAMICO’s numer- country that are close to the ASM areas, it disassoci- ous objectives will make it difficult to become a profit- ates the sector from the decentralized local government able entity. To the extent possible, commercial, national structure. Most local governments consider the ASM development, regulatory, and policy roles should be sector as a central government issue, yet security prob- separated. This also applies to NDC and—to an extent— lems in mining areas, environmental management and to TPDC (although the Petroleum Act aims at separating monitoring, safety issues, immigration into local com- TPDC’s commercial and regulatory functions). Given the munities and its impacts, are all impacts felt at the local limited human and financial resources, as well as the level. Under the formalization program, efforts should overlapping roles in the mining sector, the Tanzanian be made to decentralize the sector and involve the local government should review whether to merge the min- governments in its administration (for monitoring and ing entities within NDC and STAMICO. With increasing enforcement purposes). The Zonal and District offices amount of money flowing through the state-owned com- can remain, they can provide guidance and training for panies, it will also be increasingly important to ensure the local government mining managers (or officers). that clear financial rules are put in place. Decentralization of monitoring tasks may also reduce smuggling and underdeclaration of profits given that Make a legal distinction between small-scale and arti- local authorities are more likely to know who is operat- sanal mining activities. This will help target govern- ing in their constituency. ment support to these two groups with very different capabilities and needs. Price differentiations for licenses Targeted policy measures are necessary to address the and smaller plot area sizes may also help with the for- specific needs of women in ASM—many of whom oper- malization of artisanal miners. Factors for differentiation ate informally. It is important to develop clear guidance could include size of the area of mineral right holding, on how to mainstream gender equality concerns into the capacity, knowledge, asset ownership, equipment, and country’s ASM governance structures, giving attention organizational capabilities. to the different categories of women engaged along the entire ASM value chain. For that purpose, it could be Awareness-raising campaigns should be rolled out useful to set national targets for the empowerment of to increase formalization of the ASM sector. Although women in ASM, including, for example, number of female TANZANIA DTIS 2017 | 114 PML holders, number of ASM plots owned and man- and regional champions, such as regional hegemons, aged by women, number and value of loans disbursed charismatic leaders, and private sector interests.”103 to female ASM applicants. This, in turn, might require strengthening the capacity of the MEM, especially its Notes Gender Desk, in areas such as gender mainstreaming into policy design, gender-disaggregated data collection 1.  http://atlas.media.mit.edu/en/profile/country/ and gender-sensitive monitoring and evaluation. tza/#Exports. 2.  TMAA (2015). Finally, it may be appropriate to develop or finalize the 3.  NBS (2014). proposed National Corporate Social Responsibility 4.  TMAA (2015). Policy to guide LSM-ASM collaborations, and incor- 5.  World Bank (2015). porate a clear gender clause that entails skills and 6.  http://databank.worldbank.org/data/databases/ technology advancement specific for women in ASM. commodity-price-data. ASM and LSM collaborations already exist in Tanzania, 7.  Japan import price data (World Bank). mostly on capacity building for ASM miners provided by 8.  CCSI (2014). larger operators, however, these collaborations are usu- 9.  SID (2009). ally left to the discretion of the LSM players, and rarely 10.  UNEP (2012). include measures that address the specific needs of 11.  APPP (2011). women miners. 12.  Readhead (2016). 13.  African Barrick Gold (2013). The regional perspective provides significant oppor- 14.  Trench and others (2015). tunities for Tanzania. Many of the proposed down- 15.  World Bank (forthcoming). stream gas industrial projects will only be viable at the 16.  SNL Metals & Mining’s exploration budget regional level: database. 17.  TMAA (2015). • Electricity cost savings are to be expected from a 18.  http://atlas.media.mit.edu/en/visualize/ regional power pool approach, regional markets may tree_map/hs92/export/tza/show/7108/2014/ provide significant off-take demand for gas, 19.  Profundo (2015). • A regional content strategy may facilitate LSM invest- 20.  Acacia Mining PLC (2016). ment and provide additional market opportunities for 21.  Mjimba (2011) and CMI (2016). Tanzanian suppliers, and 22.  TMAA (2010). • Smuggling of minerals will only be achieved if coordi- 23.  www.gemval.com. nated with neighboring countries. 24.  London Stock Exchange, RNS Number : 4275K, Richland Resources Ltd, 25 June 2014. However, implementing successful regional projects 25.  MTL (2013). requires participating countries to address challenging 26.  Richland Resources Ltd. (2013). political economy issues. If Tanzania wants to become 27.  Mayala and others (2016). a prominent actor of regional integration in East Africa, 28.  Ministry of Energy and Minerals [2014] - Tanzanian policymakers must consider the interests of Minister’s Budget Speech 2014/2015, Ministry of Energy key national stakeholders beyond the formal mandates and Minerals, Dar es Salaam. of the RECs. It will be important “to distinguish where 29.  MEM (2011). regional organizations play a major role in terms of 30.  Ibid. political legitimacy, and where they can play a more 31.  Eftimie and others (2010). practical role in terms of implementation.”102 In identify- 32.  MTL and others (2012). ing sectors, partners, and scope of regional interven- 33.  MTL (2013a). tions, the country will have to determine priorities for 34.  MTL (2013b). implementation in areas where there is a clear coalition 35.  Speech of the Minister of Energy to the of interests and incentives, building on national con- Parliament about estimated revenues and expenditures cerns, and on “where there are identifiable key national for 2016/2017 (April 2016) CHAPTER 6: Extractive Industries | 115 36.  www.offshoreenergytoday.com. 67.  http://www.resourcegovernance.org/blog/ 37.  www.songas.com, www.panafricanenergy.com, challenge-adding-value-tanzania%E2%80%99s-mining- and Tanzania’s Gas Master Plan. sector 38.  Offshore Energy Today (2016). 68.  Sometimes, setting a percentage is not possible 39.  http://www.ippmedia.com/frontend/?l=86226. when gas production volumes are uncertain. A country 40.  The Exchange (2015). might be better-off setting a volume. 41.  MEM (2015). 69.  Interview with gas expert 42.  http://www.ippmedia.com/frontend/?l=86226. 70.  Franza (2013). 43.  EIA (2015). 71.  Ibid. 44.  Ng’wanakilala (2016). 72.  Ibid. 45.  Cunningham (2015). 73.  Ibid. 46.  Katakey (2015). 74.  Readhead (2016). 47.  WB-EU-UKAID (2015). 75.  Dodgson (2016). 48.  BBC News Online (2016). 76.  TMAA (2016). 49.  MEM (2015). 77.  STAMICO (2014). 50.  Tanzanian Chamber of Minerals and Energy. 78.  For a more comprehensive explanation of the 51.  http://www.acaciamining.com/~/media/Files/A/ methodology used visit: http://www.resourcegover- Acacia/press-release/2016/Agreement percent20to nance.org/resource-governance-index/methodology. percent20Prepay percent20Corporate percent20Tax 79.  Statoil comments on the Petroleum Act. percent20- percent20Final.pdf. 80.  NRGI (2016). 52.  African Barrick Gold (2011). 81.  Ibid. 53.  Doya (2012). 82.  Ibid. 54.  Banerjee and others (2015). 83.  Banerjee and others (2015). 55.  WB-EU-UKAID (2015). 84.  Ibid. 56.  Hansen (2013). 85.  Hall (2010). 57.  NRGI (2016). 86.  ICMM (2007). 58.  Available here: http://investmentpolicyhub.unc- 87.  World Bank (2014). tad.org/Download/TreatyFile/636. 88.  MTL (2013). 59.  The treaty prevents performance requirements 89.  For example, the environmental management “in connection with the establishment, acquisition, plan for the processing license is not subject to the expansion, management, conduct or operation of an requirements under the Environmental Management Act investment of an investor of a Party or of a non-Party of 2004, and as such does not need to get approval from in its territory.” Through this clause, investors from the National Environment Management Council. other countries may use the Most-Favoured National 90.  Toigo (2015). Treatment Clause, which all BITs have to gain access to 91.  Toigo (2015). the Canadian BIT provisions. 92.  EAPP (2014). 60.  Domestic content is undefined making it sub- 93.  TMSA (2012). ject to interpretation by the tribunal and the scope of 94.  Ibid. domestic content can be become wide-ranging under 95.  Ibid. the liberal interpretation. It can include employment and 96.  www.fertilizer.co.tz. training requirements for instance. 97.  Franza (2013). 61.  Tanzania – Canada BIT, Article 9(1) 98.  Hanlon and Uvunga (2015). 62.  Tanzania – Canada BIT, Article 9(4) 99.  Kenya may fear the competition of Tanzania 63.  MTL (2013). after the discovery of the gas and the increase in traf- 64.  Ibid. fic at the port of Dar-es-Salaam relatively to the port of 65.  Grynberg (2015). Mombassa (Vanheukelom and others 2016). 66.  http://www.tmaa.go.tz/uploads/A_Study_ 100.  Mjimba (2011). on_Viability_to_Construct_a_Copper_Concentrate_ 101.  Vanheukelom and others (2016). Smelter_in_Tanzania1.pdf. 102.  Vanheukelom (2016). TANZANIA DTIS 2017 | 116 103.  Ibid. features/featuretanzanite-how-tanzania-can-profit- from-mining-its-rare-stone-4698401/. Doya, David Malingha. 2012. “AngloGold Tanzania Unit References May Pay $200 Million in Taxes This Year.” Bloomberg, Acacia Mining PLC. 2016. Annual Reports & Accounts October 26. https://www.bloomberg.com/news/ 2015 . Dar es Salaam: Acacia Mining PLC. articles/2012-10-26/anglogold-tanzania-unit-may-pay- African Barrick Gold. 2011. “Update on the Tanzanian 200-million-in-taxes-this-year. Grid Power Situation.” African Barrick Gold, EAPP (East Africa Power Pool). 2014. “EAPP Regional December 9. http://www.acaciamining.com/~/media/ Power System Master Plan.” Abidjan: EAPP. Files/A/Acacia/press-release/2011/2011-12-09.pdf. Eftimie, Adriana, Katherine Heller, John Strongman _____. 2013. “African Barrick Gold PC (“ABG’’) Reports Jennifer Hinton, Kuntala Lahiri-Dutt, Nellie Mutemeri, Full Year 2012 Results.” African Barrick Gold, Chansouk Insouvanh, Michael Godet Sambo, and February 13. http://www.acaciamining.com/~/media/ Susan Wagner. 2012. Gender Dimensions of Artisanal Files/A/Acacia/reports/2013/fy2012-preliminary- and Small-Scale Mining A Rapid Assessment Toolkit. results.pdf. Washington, D.C.: World Bank. APPP (Africa Power and Politics Programme). 2011. EIA (U.S. Energy Information Administration). 2015. “The Investment and Business Environment for Gold “Egypt: International Energy Data and Analysis.” Exploration and Mining in Tanzania.” Background Washington, D.C.: EIA. paper, APPP, London. Franza, Luca. 2013. “Gas in East Africa: Assessing the Banerjee, Sudeshna Ghosh, Zayra Romo, Gary Potential for Various Stakeholders.” Energy Paper, McMahon, Perrine Toledano, Peter Robinson, and Clingendale International Energy Programme, The Inés Pérez Arroyo. 2015. "The Power of the Mine: A Hague. Transformative Opportunity for Sub-Saharan Africa." Grynberg, Roman. 2015. “Botswana Directions in Development. Washington, D.C.: World Diamond Workers Bleed.” Mail & Bank. Guardian, February 20. https://mg.co.za/ BBC News Online. 2016. “Uganda Picks Tanzania article/2015-02-19-botswana-diamond-workers-bleed. for Oil Pipeline, Drops Kenya Plan.” BBC News Hall, Aaron. 2010. Tanzania’s Gold Sector: From Online, April 23. http://www.bbc.com/news/ Reform and Expansion to Conflict. Falls Church, world-africa-36121081. VA: Foundation for Environmental Security and CCSI (Columbia Center on Sustainable Investment). Sustainability. 2014. “Local Content Laws & Contractual Provisions: Hanlon, Joseph and Adriano Nuvunga. 2015 “Gas for Tanzania - Mining.” New York: CCSI. http://ccsi. Development or Just for Money?” Good Governance, columbia.edu/files/2014/03/Local-Content-Tanzania- Transparency and Integrity, Edition No. 08. Center for Mining-CCSI-July-2014.pdf. Public Integrity, Maputo. ____. 2016. “Linkages to the Resource Sector: The Hansen, Michael W. 2013. “Reaping the Rewards of Role of Companies, Government and International Foreign Direct Investment: Linkages Between Development Cooperation.” Bonn and Eschborn: Extractive MNCs and Local Firms in Tanzania.” Deutsche Gesellschaft für Internationale Working Paper 2013:22, Danish Institute for Zusammenarbeit (GIZ) International Studies, Copenhagen. https://www.diis. CMI (Chr. Michelsen Institute). 2016. Local Content in the dk/files/media/publications/import/extra/wp2013- Tanzanian Mining Sector. Bergen: CMI. 22_extractive-mncs-tanzania_michael-w-hansen_ Cunningham, Nick. 2015 “LNG Glut Set To Worsen web.pdf. Considerably Over Next 3 Years.” Oil Price, Trench, Allan, Chris Gemell, Tony Venables, Michael November 11. https://oilprice.com/Energy/Gas- Curtis, and John Sykes. 2015. "Evaluating the Prices/LNG-Glut-Set-To-Worsen-Considerably-Over- Attractiveness of Fiscal Regimes for New Gold Next-3-Years.html. Developments: African and South American Peer Dodgson, Linsday. 2016. “Tanzanite: How Tanzania Can Country Comparisons.” Action Research Report, Profit from Mining Its Rare Stone.” Mining Technology, International Mining for Development Centre, April 26. https://www.mining-technology.com/ Brisbane. http://www.eisourcebook.org/cms/ CHAPTER 6: Extractive Industries | 117 April%202016/Fiscal-Regimes-for-New-Gold- Programme on the Elimination of Child Labour. Developments-Completed-Report.pdf. NBS (Tanzania National Bureau of Statistics). 2014. 2014 Katakey, Rakteem. 2015. “Tanzania Sees Decision on Tax and Government Finance Statistics Report - $15 Billion LNG Project in Three Years.” Bloomberg, Tanzania Mainland. Dar es Salaam: NBS. June 19. https://www.bloomberg.com/news/arti- Ng’wanakilala, Fumbuka. 2016. “Tanzania Finalises Land cles/2015-06-19/tanzania-sees-decision-on-15-billion- Deal for Delayed LNG Project.” Reuters, January 29. lng-project-in-three-years. https://www.reuters.com/article/tanzania-energy/ MacDonald, Catherine and Alan Roe. 2007. “Tanzania tanzania-finalises-land-deal-for-delayed-lng-project- Case Study: The Challenge of Mineral Wealth – idUSL8N15D0MS. Using Resource Endowments to Foster Sustainable NRGI (Natural Resourge Governance Institute). 2016. Development.” International Council on Mining and “Tanzania’s 2015 Extractive Sector Legislation: Metals, London. Recommendations for Effective Implementation.” New Mayala, Laurent Paul, Marcello M. Veiga, and York, NY: NRGI. Mohammad Babaei Khorzoughi. 2016. “Assessment Offshore Energy Today. 2016. “Orca Wraps Up Offshore of Mine Ventilation Systems and Air Pollution Impacts Program on Songo Songo.” Offshore Energy Today, on Artisanal Tanzanite Miners at Merelani, Tanzania.” February 22. https://www.offshoreenergytoday.com/ Journal of Cleaner Production 116 (March): 118–124. orca-wraps-up-offshore-program-on-songo-songo/. MEM (Tanzanian Ministry of Energy and Minerals). 2011. Profundo. 2015. “Options for Sustainability – Strategic “Report on the Baseline Survey on Artisanal and Gold Chain Assessment.” Amsterdam: Profundo. Small-Scale Mining Activities and Preparation of an Readhead, Alexandra. 2016. “Case Study: Transfer ASM Database.” MEM, Dar es Salaam. Pricing in the Extractive Sector in Tanzania.” New _____. 2014. “Minister’s Budget Speech 2014/2015.” York: Natural Resource Governance Institute. MEM, Dar es Salaam. Richland Resources Limited. 2013. _____. 2015. Natural Gas Utilisation Master Plan 2016 - SID (Society for International Development). 2009. “The 2045 . Dar es Salaam: MEM. Extractive Resource Industry in Tanzania: Status and Mjimba, Vuyo. 2011. “The Nature and Determinants of Challenges of the Mining Sector.” Nairobi: SID. Linkages in Emerging Minerals Commodity Sectors: STAMICO (Tanzania State Mining Corporation). 2014. A Case Study of Gold Mining in Tanzania.” Making the “Strategic Plan: 2014/15 – 2018/19.” Dar es Salaam: Most of Commodities Programme Discussion Paper STAMICO. No. 7, Centre for Social Science Research, University The Exchange. 2015. “Mnazi Bay Starts of Cape Town, Development Policy and Practice, and Distributing Natural Gas.” The Exchange, Open University. September 4. https://www.exchange.co.tz/ MTL. 2013. “Assessment of the Politics of ASM Gold mnazi-bay-starts-distributing-natural-gas/. Supply Chain in Geita Region, Volume I: Main Report”, TMAA (Tanzania Minerals Audit Agency). 2010. Study carried out by MTL Consulting Co. Ltd. for ____. 2015. Tanzania Minerals Audit Agency Annual AngloGold Ashanti, Geita Gold Mining Limited. Report. Dar es Salaam: TMAA. MTL and Others. (2012): MTL Consulting Company TMSA (TradeMark Southern Africa). 2012. “Regional Limited, Tandiscovery Mineral Consulting Co. Ltd and Solutions to Providing Electricity in the COMESA- PaulSam Geo-Engineering Co. Ltd. “Baseline Survey EAC-SADC Tripartite Region.” Pretoria: TMSA. on Artisanal and Small Scale Mining (ASM) Activities Toigo, Pietro. 2015. “Can Extractive Resources Help and Preparation of an ASM Database” Study car- Integrate Africa?” Industrialisation and Trade Corner ried out as part of the “Sustainable Management of (blog), December 7. https://www.afdb.org/en/blogs/ Mineral Resources Project (SMMRP) for the Ministry industrialisation-and-trade-corner/post/can-extrac- of Energy and Minerals under financing of the World tive-resources-help-integrate-africa-15156/. Bank (Credit Support No. 4584-TA). UNEP (United Nations Environment Programme). Mwami, J.A., Sanga, Nyoni. 2002. “Investigating the 2012. “Analysis of Formalization Approaches in the Worst Forms of Child Labor No. 15, Tanzania Children Artisanal and Small-Scale Gold Mining Sector Based Labor in Mining: A Rapid Assessment” Geneva: on Experiences in Ecuador, Mongolia, Peru, Tanzania International Labour Organization, International and Uganda – Tanzania Case Study.” Nairobi: UNEP. TANZANIA DTIS 2017 | 118 Uongozi Institute. 2015. “State of the Extractive Sector of _____. 2015. “Tanzania - Sustainable Management of Tanzania Report.” Dar es Salaam: Uongozi Institute. Mineral Resources Project : Additional Financing.” Urassa, J.E. 2007. “Promoting Community Based Washington, D.C.: World Bank. http://documents. Initiatives for Vulnerable and Disadvantaged Children worldbank.org/curated/en/846261468304269754/ Mererani Ward, Simanjiro‐ Manyara.” Dar es Salaam: Tanzania-The-Sustainable-Management-of-Mineral- Open University of Tanzania. Resources-Project-additional-financing Vanheukelom, Jan, Bruce Byiers, San Bilal, and Sean _____. 2016. “Maximizing Domestic Value Added in Woolfrey. 2016. “The Political Economy of Regional the Oil and Gas Industry: Sharing Lessons Learned Integration in Africa: What Drives and Constrains Through Public Private Dialogues in Tanzania.” World Regional Organisations?” European Centre for Bank, Washington, D.C. Development Policy Management, Maastricht. _____. Forthcoming. “Transfer Pricing in the African WB-EU-UKAID (World Bank, European Union, and Mining Industry: A Reference Guide for Practitioners.” UKAID). 2015. “Promoting Private Sector Linkages to Washington, D.C.: World Bank. the Natural Gas Value Chain in Tanzania.” WB. World Bank. 2014. “Innovative Small-Scale Mining Initiative Kicks Off in Tanzania.” World Bank, November 24. CHAPTER 6: Extractive Industries | 119 Annex 6A TABLE 6A.1: List of Companies Connected to Natural Gas and Consumption Natural gas Natural gas Company name consumption (mmscfd) Company name consumption (mmfscd) a) Industries b) Institutions Bautech - 1 0.002 Keko Prison 0.006 Said Salim Bakhresa 0.005 Movernpick Hotel (Tanruss Investment) 0.032 Soap and Allied Industries Limited 0.011 TPDC Estate 0.001 Bora Industries Ltd. 0.014 c) Power plants Tanzania Cutleries 0.018 Ubungo Turbines (UGT 6) 41.390 VOT Tanzania Ltd. 0.026 Ubungo I 17.820 Simba Plastic Ltd. (SILAFRICA) 0.039 Symbion B 4.724 Dar Brew 0.042 Tegeta (45 megawatts) 7.850 YUASA Batteries (GAIA ECO SOLUTION) 0.055 Ubungo II 14.580 A-One 0.058 Symbion DSM 16.420 Namera industries 0.060 Kinyerezi I 12.900 MMI Steels - 3 0.066 Source: Tanzanian Ministry of Energy and Minerals. MMI Steels - 2 0.068 Note: MMSCFD = million standard cubic feet per day. Tanpack Tissues 0.079 Azam Bakeries Limited 0.083 Iron & Steel 0.089 Serengeti Breweries 0.093 OK Plast Limited 0.097 SBC Limited - PEPSI 0.098 Steel Masters 0.103 Kamal Steel Ltd. 0.109 Aluminium Africa Ltd. 0.120 MMI Steels - 1 0.153 TZ-CHINA TEXTILE (URAFIKI) 0.170 Murzah 1 0.223 Tanzania Cigarette Company 0.298 Murzah 2 0.325 Tanzania Breweries Ltd. 0.400 NIDA TEXTILE 0.408 Murzah 4 0.450 Murzah 3 0.457 Nampak Tanzania Ltd. 0.268 East Coast Oils & Fats 0.477 Kioo Limited 2.244 TPCC (Wazo Hill) 10.000 TANZANIA DTIS 2017 |  120 7 Tourism Tourism is the sector with the highest employment generation potential (World Bank 2014). Recent studies showed that when the price of gold—Tanzania’s largest export by value—fell, the country’s fiscal and foreign-exchange revenues were primarily supported by tourism (DFID 2016). Despite this positive outlook, tourism in Tanzania has mostly performed at a fraction of its potential. The sector is poorly managed, underinvested, under-resourced, and lacks a coordinated all-of-government approach and vision. Tourism in the country is generally viewed by the public sector as a source of tax revenue, and policies to ensure sustainability and social and economic inclusion are absent, or, at best, remain unimplemented. Developing new areas and products that can expand the tourism value proposition (for investors, tourists, and citizens) are significant challenges that require concerted political will and collective vision, policy, strategies, reforms, and both public and private sec- tor investments. The need for this pathway has been recognized by the private sector for some time and is now part of the Tanzanian government’s agenda, which the World Bank and other partners support. A review of the existing Tourism Policy and a new National Tour- ism Strategy are supported by a World Bank-sponsored Private Sector Competitiveness Project.1 This Diagnostic Trade Integration Study (DTIS) for Tanzania is therefore a timely input to these important new initiatives. In 2015, more than a million tourists travelled to Tanzania, con- tributing (directly and indirectly) nearly 12 percent of gross domestic product (GDP), making it the country’s "Tourism is the largest export services sector (WTTC 2016). Travel and sector with the tourism-related services receipts totaled US$2.2 bil- lion, representing more than 25 percent of the country’s highest employment total exports and 60 percent of the country’s services generation potential." receipts (WTTC 2016 and MNRT Statistics). In 2015, the CHAPTER 7: Tourism |  1 2 1 industry directly supported 467,000 jobs, and, through Tourism Growth Trends, Market Segments, backward links, was responsible for more than 1.3 mil- and Sector Assets lion jobs or 12.2 percent of the nation’s total employ- ment.2 And, in 2014, Tanzania earned more per visitor Growth Trends (US$1,770) than each of its main competitors, Kenya In just a decade, Tanzania’s tourism numbers have more (US$643), Uganda (US$628), Botswana (US$634), and than doubled, from about 500,000 in 2005 to over 1.2 South Africa (US$978).3 million in 2015 (figure 7.1). Growth in numbers has been steady and less volatile than competitor destinations Over 80 percent of Tanzania’s leisure tourism is (such as Kenya or Botswana). Although Tanzania under- generated by the country’s world-class wildlife and performs its competitors in terms of tourist volume, it landscapes of the “northern circuit”—Ngorongoro Con- is doing better in terms of value per tourist—demon- servation Area, Serengeti, Lake Manyara, Tarangire, and strating that Tanzanian companies are able to charge Mount Kilimanjaro National Parks—and the island of a premium and the prevailing low-volume, high-value Zanzibar’s beaches and resorts. According to data from tourism policy is effective. The flipside, however, is that the Tanzania National Parks Authority and the Ngorong- it has constrained the growth and diversification of the oro Crater Conservation Area, more than 70 percent of country’s tourism products and operators beyond the visits to the country’s protected areas are concentrated higher-premium offers; the policy and existing legisla- in Ngorongoro Crater, Serengeti, Tarangire, and Lake tion actually raised barriers to entry for smaller opera- Manyara National Parks (MNRT statistics). tors, in effect, tethering growth of the products and operators in the northern circuit. Analysis by the World Bank (2015a) identified tourism’s potential to generate “additional jobs by developing Market Segments and Sector Assets products in beach, adventure, conference, and cultural- Most of Tanzania’s tourism growth has been driven by heritage tourism, and broaden its appeal to tourists by the northern circuit’s world-class natural and wildlife diversifying beyond the current low-volume, high-value assets and Zanzibar’s beaches and resorts. There are strategy that is so heavily weighted toward the wildlife- growing trends towards cultural, marine, and adventure based northern circuit.” The study concluded that the (especially bicycling and trekking) tourism. However, tourism sector is “hobbled by outdated policies, an wildlife viewing remains the country’s main attraction, unclear vision, and a disabling business environment,” with more than 44 percent of its land area comprised of and thus, “Tanzania does not benefit fully from the full game reserves and national parks. There are 16 national range of opportunities that the tourism sector offers.” parks, 29 game reserves, and 40 controlled conserva- This chapter analyzes the issues highlighted by recent FIGURE 7.1: International Arrivals to Tanzania, Kenya, reports produced by the World Bank and other devel- Uganda, and Botswana, 2005–15 opment partners. It examines Tanzania’s current com- 3.5 petitiveness through the lens of a typical tourism value chain and extensive interviews with private sector 3.0 tourism associations, investors, and operators. The next 2.5 No. of tourists (millions) sections highlight key areas where reforms could sup- port Tanzania’s ability to sustain existing tourism growth 2.0 and expand into new areas and products. Four specific 1.5 areas for actions have been identified: (1) improving the tourism policy and legal and regulatory environment for 1.0 public sector governance and business operations; (2) 0.5 human resource development in both the public and pri- vate sectors; (3) access to finance, especially for small 0 and medium enterprises (SMEs); and (4) access to land 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 for new tourism investment and security of tenure in Tanzania Botswana Kenya Uganda protected areas. Source: Derived from United Nations World Tourism Organization. TANZANIA DTIS 2017 |  122 tion areas and marine parks that constitute the poten- percent of rooms, 24 percent of beds and employees. tial nature-based product offer. Although Ngorongoro Dar es Salaam accounts for 24 percent, 34 percent, and Crater’s area is less than 1 percent of the Serengeti’s, it 32 percent, respectively (Tanzania Tourism Statistical gets more visitors. Figure 7.2 shows this skewed tourist Bulletin 2014). visitation in Tanzania. This imbalance is assessed in a strategy commissioned Among the 91 members of the Hotels Association of by the U.S. Agency for International Development Tanzania (HAT), which include some of the most estab- (USAID) and the government of Tanzania.4 The strategy lished operators in the country, most are concentrated aims to assist with the potential for further development in the north. HAT members with properties in the pro- of southern Tanzania’s tourism circuits and products. tected areas have 220 establishments (5,650 rooms and The World Bank is assisting through a project that also 10,543 beds). Among these establishments, 66 percent focuses on southern Tanzania, with an emphasis on the are concentrated in northern destinations, which, as development and conservation of nature-based tourism, figure 7.2 shows, attract over 90 percent of all visits to enhanced local economic benefits, and improved land- wildlife areas. However, HAT members are increasingly scape management.5 looking at southern destinations for opportunities. They now have 75 facilities (34 percent of the total) with 1,081 Further, security of tenure in protected areas, infra- rooms (24 percent) and 2,236 beds (27 percent) in the structure within and around tourist attractions, more protected areas, which receive less than 7 percent of all frequent air access, availability of local labor, and viable visits to wildlife areas. Overall occupancy rates in south- tourist products, have been defined by the private sec- ern Tanzania are significantly lower than the north. Table tor as the binding constraints to further development in 7.1 shows that the northern destination regions (Arusha the south.6 and Kilimanjaro) account for the second-highest concen- tration of accommodations, rooms, beds, and employees Cultural tourism experiences are becoming more pop- after Dar es Salaam: 17 percent of establishments, 20 ular as add-ons to safari visits. Over 700 tour opera- tors in Tanzania offer cultural-tourism activities. The FIGURE 7.2: Total Visitors to Protected Areas, 2014 Tanzania Cultural Tourism Program (TCTP) has helped create over 42 “cultural tourism enterprises” (CTEs) in communities near Arusha, Dodoma, Kilimanjaro, Lindi, Mara, Manyara, Mbeya, Morogoro, and Tanga. They are Mikumi 3.3% supported by the Tanzania Tourist Board (TTB), the Arusha 4.2% Serengeti Tanzanian Ministry of Natural Resources and Tourism 24.9% (MNRT), the United Nations World Tourism Organization (UNWTO), the Tanzania Private Sector Foundation- Cluster Competitiveness Program, the Food and Ngorongoro Crater Agricultural Organization of the United Nations, and the Ruaha 1.3% 37.8% Centre for Development of Enterprises. With their sup- port, the CTEs offer opportunities such as local life ex- Lake Manyara periences, traditional dances and ceremonies, sam- 11.2% Kilimanjaro 3.4% pling of local cuisine, home-stays, handicrafts, commu- nity development initiatives, indigenous knowledge, his- torical heritage, nature walks, and local folklore.7 All of Tarangire 10.8% these experiences are becoming important links in the country’s tourism value chain, thus offering expand- Northern circuit Southern circuit ed opportunities for more local microenterprise, jobs, Western circuit Eastern circuit and incomes. Source: Derived from the Tanzanian Ministry of Natural Resources and Tourism. Note: Others not shown on the figure - northern circuit: Mokmazi = 1.1%; southern circuit: As these initiatives progress, especially for expanding Udzungwa Mountains = 0.6%; Kitulo = 0.05%; western circuit: Saanane = 0.7%; Katavi = 0.3%; Gombe = 0.1%; Mahale Mountains = 0.1%; Rubondo Island = 0.05%; eastern circuit: Saadani = 1.1%. tourism in the southern region, it will be critical to define CHAPTER 7: Tourism |  1 2 3 TABLE 7.1: Number of Tourist Standard Accommodation Establishments around Tanzania, 2013 No. of No. of No. of No. of Region establishments rooms beds employees Arusha 127 3,394 5,188 3,513 Dar es Salaam 291 8,758 10,231 6,470 Kilimanjaro 79 1,766 2,711 1,357 Tanga 80 1,061 1,403 848 Mwanza 54 1,490 1,579 1,133 Mara 8 123 142 45 Morogoro 50 1,107 1,183 1,051 Pwani 28 617 495 485 Lindi 15 161 219 161 Mtwara 38 493 544 366 Iringa 28 591 805 418 Manyara 63 1,152 1,270 699 Mbeya 82 1,442 2,760 1,905 Tabora 49 581 585 274 Singida 68 796 832 328 Dodoma 140 2,138 2,185 1,066 Njombe 10 1 127 71 Total 1,210 25,793 32,259 20,190 Source: Derived from Tanzania Tourism Statistical Bulletin. market segments and test assumptions that these offers FIGURE 7.3: Origin of International Visitors, 2015 will appeal to the country’s main generating markets Kenya (see figure 7.3). Among these markets, the world’s high- United States est spenders (from largest) are China, the United States, United Kingdom Germany, the United Kingdom, France, Canada, Italy, Italy and the Netherlands.8 The United States and the tradi- Germany tional markets of Western Europe are by far the most Burundi dominant consumers of the Tanzanian tourism experi- Rwanda ence, and these, along with the fast-growing Chinese Uganda market, should be the focus of market research and Zambia promotion activities. India France China Tourism Policy and Institutional Framework Netherlands Tanzania’s most recent National Tourism Policy is nearly Canada 20 years old and dates from September 1999. Overall, 0 50,000 100,000 150,000 200,000 the policy was a sound document that outlined several No. of visitors Source: Derived from United Nations World Tourism Organization. economic, social, environmental, and cultural objectives, Note: The data records the total number of nonresident visitors by nationality, which includes as well as multiple specific policy strategies, all of which nontourists. Tourists account for 77 percent of all international visitors to Tanzania. sought to ensure sustainability and maximum benefits for the country and its citizens. The strategies proposed the mainland and the Ministry of Tourism in Zanzibar. for the core areas in the policy were all logical actions, Despite the sound rationale and best practice of all the however, they lacked implementation plans, appropriate tourism and related areas of responsibility (wildlife, resources, and institutional capacities to carry them out. antiquities, forests, national parks, and so on) being consolidated under the umbrella of the MNRT, there is Overall responsibility for the tourism policy and its significant fragmentation and overlap in mandates and implementation in Tanzania lies with the MNRT on responsibility within the different functional divisions TANZANIA DTIS 2017 |  124 and organizations under the ministry, and between the Development Challenges MNRT and its bodies and other ministries. Policies and Governance The MNRT is organized in four major operating divisions: The multiple tourism development challenges faced by Tanzania are undermined by the inconsistent implemen- 1. Tourism Division: The division is responsible for tation of existing policies and the absence of a common sector policy and planning, manpower training, clas- all-of-government vision and direction for tourism devel- sification and licensing of hotels and tourism agen- opment, which is further compounded by an unclear cies, and supervises the Hotel and Tourism Training legal and regulatory environment, where approvals for Institute and the TTB. Important sections for inves- new investments (or ongoing business operations) take tors within the division are the Tourism Training Unit, too long and appear to be discretionary. Overall, the the Tourism Agency Licensing Authority (TALA), and main issues could be summarized as: the Hotel Board (the latter two being responsible for licensing and controlling travel agencies, tour opera- • The general lack of capacity, motivation, and direction tors, and accommodation facilities). within each division and agency due in part to the 2. Wildlife Division: The division is responsible for constraints of the public service regulations; all wildlife management outside designated parks • Each division within the MNRT takes an independent- and conservation areas and issues regarding hunt- silo approach—overlooking the critical cooperative ing concessions and licenses. Management is split and synergistic demands of the sector; between the department and six parastatals: • Obvious inefficiency and duplication of governance, –– Tanzania National Parks administration, and operational expenses; –– Ngorongoro Conservation Area Authority • The lack of effective consultation, advisory, and –– College of African Wildlife Management, Mweka engagement mechanisms with the private sector; –– Serengeti Wildlife Research Institute: covers • The devolution of powers to regional governments research for the whole country without proper guidelines, protocols, or mechanisms –– Tanzania Wildlife Company for coordination; –– Tanzania Wildlife Authority: responsible for manag- • The TALA enterprise licensing and registration ing wildlife outside national parks scheme is focused more on fees and tax collection 3. Tanzania Forest Service (TFS): The division was formed than standards and quality assurance—which is its out of the Forest and Beekeeping Division (FBD) most important purpose; within the MNRT. It has taken over the responsibili- • Coastal areas with tourism development potential ties of the FBD for the management of national forest are under the jurisdiction of at least four overlapping reserves (natural and plantations), bee reserves, and government agencies and ministries, making decisions forest and bee resources on general lands. The FBD about land use and approvals for investment very is responsible for the development of forest policy, difficult to reach; laws, and regulations. • Key teams are missing qualified professionals, 4. Antiquities Division: The division is respon- especially on project management, destination sible for managing the country’s cultural heritage planning, engineering, legal, and digital marketing; and patrimony. • Competent and qualified staff cannot be retained and motivated because of public service salary Across all departments, the MNRT lacks the resources constraints; and to effectively regulate the sector, manage assets, and • Fees collected from the tourism industry, such as the implement development strategies. The different divi- training levy, are not channeled appropriately to their sions operate as silos and are protective of their man- decreed purposes. dates to the extent that policies are often conflicting, particularly with respect to private sector operations For Tanzania to fully realize its tourism potential, these in and around wildlife areas. For example, terms and are the critical binding constraints that it needs to conditions in concession contracts and fees are incon- address: a clear tourism vision, a new policy, a strategic sistently applied. action plan, updated laws and regulations, and compe- CHAPTER 7: Tourism |  1 2 5 tent and resourced institutions to implement the action “national treatment” to foreign services and service plan. Perhaps, most of all, the tourism sector requires a suppliers, thus offering foreign suppliers the same strong political economy and consistent inter-ministerial treatment as nationals. Countries have committed to dialogue—a process that requires leadership from the liberalize services in general, and tourism, specifically top level of the government. according to market access and national treatment through four “modes of supply” for three tourism Public-Private Dialogue subsectors (hotels and restaurants, travel agencies and In 2014, a Tourism Task Force (TTF) was initiated tour operators services, and tourist guides services) through the Tanzania National Business Council (TNBC). and an open-ended “other” category. Box 7.1 shows This important public-private dialogue initiative has the tourism service commitments for Tanzania and resulted in a series of concrete recommendations to regional competitors. address the growth and inclusion challenges of the tourism sector in the country. They were presented Tanzania made three commitments for the tourism sub- to the Tanzanian government through the Tourism sectors in terms of market access or national treatment: Confederation of Tanzania (TCT). The TCT is an umbrella organization that represents the private business sec- 1. Partial liberalization for only four-star hotels and tor (subsector associations) involved in the travel and above for market access. tourism industry in the country; it is the unified voice of 2. Commercial presence: Acquisitions of domestic firms the industry. Members include the HAT, the Intra-African and mergers by foreigners are subject to approval Travel and Tourism Association, Tanzania Air Operators by Cabinet. The acquisition of land by foreigners Association, the Tanzania Association of Cultural or domestic companies, which are deemed foreign Tourism (TACTO), the Tanzania Association of Tour because of foreign equity ownership, is subject to the Operators, the Tanzania Hunting Operators Association, same approval. the Tanzania Professional Hunters Association, the 3. Presence of natural persons: Unbound, except for Tanzania Society of Travel Agents, the Tanzania Tour measures concerning senior managers who possess Guides Association, the Tourism Professional Hospitality skills unavailable in Tanzania. Association of Tanzania, the Zanzibar Association of Tourism Investors, and the Zanzibar Association of Market access for four-star hotels (and above) is sym- Tour Operators. bolically positive, suggesting that higher-end invest- ments are welcomed, but there’s been no investments While still existing on paper, the TTF and the TNBC have of this kind in the past decade. Foreign acquisitions of been dormant since the change of government in May domestic firms and land are subject to approval regard- 2015. These dialogue and advocacy platforms should be less of the commitment on commercial presence. And revived and formalized through memorandum of under- the presence of natural persons, thus international standings (MOUs) with the respective local and national movement of labor, is most relevant for the industry government bodies. at the management level, but that is not included. Commitments on tourism services do not necessarily General Agreement on Trade in Services reflect liberalization leading to increased arrivals and/or Through an international trade lens, the General receipts. Table 7.2 lists the GATS tourism commitments Agreement on Trade in Services (GATS) offers for Tanzania and their regional comparators in the East a framework for examining the challenges and African Community (EAC) and the Southern African opportunities for increasing and sustaining Tanzania’s Development Community (SADC). tourism competitiveness. Under the GATS, 125 World Trade Organization-member countries committed to Regional Integration liberalize tourism services as a means of trade and thus economic expansion and development (although there Opportunities has been no further action by any member since 2004).9 Regional integration aims to increase trade and The GATS framework focuses on two key areas of investment and promote competitiveness for all liberalization: Improving “market access” and extending member countries of the EAC. Streamlining policies TANZANIA DTIS 2017 |  126 BOX 7.1: Understanding GATS Terminology A specific commitment in a services schedule is an undertaking 2 is the actual consumption of the service purchased and delivered to provide market access, and national treatment for the service in mode 1, thus wherein a person travels to a foreign country to activity in question on the terms and conditions specified in the consume the tourist services. In other words, consumption in schedule. When making a commitment a government, therefore, Tanzania of Safarihub’s package would be considered consumption binds the specified level of market access and national treatment, abroad. and undertakes not to impose any new measures that would restrict entry into the market or the operation of the service. In many cases, MODE 3: Commercial presence. This covers services provided by the binding listed the existing restrictions, or even listed additional a supplier from one country in the territory of another country. An restrictions to provide for policy space. Consequently, commitments example is the establishment abroad of a branch of a hotel chain or cannot be used to infer liberalization. tour operator, thus the &Beyond Ngorongoro Crater Lodge, which is owned by the South Africa-based &Beyond company. The four “modes of supply” are: MODE 4: Presence of natural persons. This covers services MODE 1: Cross-border trade. This is the delivery of a service provided by a supplier from one country through the presence of from the territory of one country to the territory of another country. natural persons in the territory of another country. An example In tourism, an example would be a company such as the United would be the &Beyond Ngorongoro Crater Lodge hiring a foreign Kingdom-based Safarihub selling travel packages online for delivery manager. Cross-border movement of labor relates to this mode. in Tanzania. Source: Derived from the WTO Trade in Services website https://www.wto.org/english/ MODE 2: Consumption abroad. This covers the supply of a service tratop_e/serv_e/serv_e.htm. of one country to the service consumer of any other country. Mode Notes: GATS = General Agreement on Trade in Services. TABLE 7.2: EAC and SADC: GATS Tourism Commitments Travel agencies and Country Hotels and restaurants tour operators Travel guides Other EAC countries Burundi Extensive Extensive Extensive Extensive Kenya Extensive Extensive Extensive No commitments Rwanda Extensive No commitments No commitments No commitments Tanzania Partial No commitments No commitments No commitments Uganda Partial Partial No commitments No commitments Competing SADC countries Botswana Partial Partial No commitments No commitments Mozambique No commitments No commitments No commitments No commitments Mauritius Partial Partial Partial Partial Namibia Full Full No commitments No commitments South Africa Partial Extensive Partial No commitments Zambia Extensive Extensive Extensive Extensive Zimbabwe Extensive Partial Partial No commitments Source: Derived from World Trade Organization. Notes: EAC = East African Community; SADC = Southern African Development Community; and GATS = General Agreement on Trade in Services. and regulations can lead to increased coordination Potential improvements from regional integration could and pooling of resources especially for the following increase intra-regional travel. This is important because, tourism-related improvements: improved road and air as of 2014, over 40 percent of Tanzania’s international access, fewer visa restrictions, increased cross-border arrivals were from East Africa (see table 7.3). movement of people and goods, more harmonization of national policies and standards, more coordinated In 2014, as table 7.4 shows, EAC countries received 4.7 trade and investment promotion, as well as on safety million international arrivals and earned US$3.9 billion. and security—all of which bodes well for increasing the Among the EAC countries, Tanzania accounted for nearly volume and benefits of EAC regional tourism. half of all tourism receipts and a quarter of all arrivals. CHAPTER 7: Tourism |  1 2 7 TABLE 7.3: International Arrivals to Tanzania from Eastern and Southern Africa, 2009–14 Growth, Country or region 2009 2010 2011 2012 2013 2014 2009–14 (%) Eastern Africa 304,856 334,986 354,635 411,065 456,552 458,695 50.5 Kenya 177,929 193,474 171,473 183,269 193,078 188,214 5.8 Burundi 14,581 17,440 34,341 43,194 34,873 51,553 253.0 Rwanda 14,331 14,754 17,676 25,199 46,637 50,038 250.0 Uganda 32,826 31,869 32,634 36,583 39,488 36,420 11.0 Source: Derived from United Nations World Tourism Organization 2016 Yearbook of Tourism Statistics. As table 7.4 shows, intra-regional travel is already sub- tion of benefits” from sustainable tourism and wildlife stantial. The no-visa requirement for EAC citizens and resources. Yet, no EAC state has developed a specific uni-visa for non-EAC citizens visiting EAC countries are regional strategy (individually or as a group). Neverthe- helping to increase the flow of tourists. Although most less, the treaty identified several strategic interventions of these arrivals were for visiting family and friends, for action, which could provide a foundation for the Kenya, Uganda, and Rwanda are preparing strategies EAC-member state regional strategies. Although all of to target more leisure visitors from EAC countries; tap- the proposed interventions would certainly be a boost to ping the EAC market is a development that Tanzania tourism, a feasible starting point are the following top- could also benefit from actively pursuing. EAC regional priority interventions from the treaty: integration is also relevant for tourism development because policy coordination in areas such as safety and • Market and promote East Africa as a single tourist security standards and programs, adoption of interna- destination, which, since 2006, has been partially tional hotel classification standards, and joint market- occurring via the East African Tourism and Wildlife ing of East African tourism would enable countries to Coordination Agency (EATWCA) at international pool their financial resources and expertise for greater tourism fairs. benefits and thus increased tourism access, demand, • Operationalize the EATWCA, which was created as and competitiveness. an implementing agency for EAC tourism activities, including the implementation of the EAC Tourism and Strategic Interventions Wildlife Marketing Plan and Strategy of 2007. Strengthening coordination on regional tourism policy and marketing was addressed in Article 115 of the In addition to these priority strategic interventions, a EAC Treaty, which requires member states to develop World Bank (2016a) study recommends increasing EAC a regional strategy for tourism promotion, with the coordination for improving and sharing statistics and development objective of “ensuring equitable distribu- research. It recommended several other interventions, TABLE 7.4: Total Tourist Arrivals and Receipts in EAC Countries, 2014 International Total international Market share of tourist arrivals tourism receipts SSA (%) Receipts per Total no. Change, Total Change, Destinations visitor (US$) (million) FY2015 (%) (US$, billion) FY2015 (%) Arrivals Receipts World 1,041 1,200 4.4 1,250 – – – Sub-Saharan Africa 751 34.2 -0.6 25.7 – 2.8 (of world) 2.1 (of world) EAC – 4.7 – 3.9 – 13.7 (of SSA) 15 (of SSA) Tanzania 1,770 1.13 4.7 2 16.5 3.3 7.80 Kenya 643 1.26 -12 (2013) 0.811 -13.7 3.7 3.16 Uganda 628 1.26 4.9 0.792 -40.7 3.7 3.10 Rwanda 329 0.926 7.2 0.305 3.8 2.7 1.20 Burundi (2010) 28 0.142 – 0.4 79.0 (2013/12) 0.4 0.02 Source: Derived from United Nations World Tourism Organization. Notes: EAC = East African Community; SSA = Sub-Saharan Africa. TANZANIA DTIS 2017 |  128 but improved research would provide the data needed integrated companies that sell in the source market and to achieve other interventions such as improved crisis operate safaris and accommodation in Tanzania, but management and the creation of multi-country itinerar- even then, the companies operating in the source mar- ies based on market demand and interest. ket have costs and pay taxes locally. The EATWCA could both stimulate and benefit from For Tanzania to get a share of the US$2,773.20, increased statistics and research coordination. It was consumers would need to book directly with in-country created as an implementing agency for EAC tourism agents and/or suppliers, such as the lodge and local activities, and, logically, an expanded entity should be tour operators. This would require a stronger internet the host site for the research portal mentioned ear- presence and consumer confidence in Tanzanian lier. Armed with the best possible data and research service providers. The current business model for most from each country, the agency would also be better tourism businesses in Tanzania is to be represented positioned to achieve the other interventions, notably, and marketed abroad through agents and brands in joint marketing and the development of regional initia- the source markets. Consumer protection laws in tives, especially related to routes and circuits, which source market countries would have to be enforceable would generate more operator and investor confidence in Tanzania, including through the insurance and and interest. reinsurance markets. Increasing Economic Links The costs of the eight-day safari to the operator in Tan- zania are as follows: Tanzania’s Tourism Value Chain For Tanzania to become more competitive and pro- • Total US$633.84 per day vide expanded benefits from tourism, the multiple –– US$200 per day in food and lodging (31.5 percent links across the tourism value chain (figure 7.4) should of total) be strengthened. ››US$123.5 per day transport (19.48 percent of total) ››US$133 per day company overhead and local office Figure 7.5 is an illustrative example of the tourism value operating costs (20.98 percent of total) chain in Tanzania, it is based on estimates from the ››US$65.75 per day in salaries (10.1 percent of total) chief financial officer of a Tanzanian company that owns ››US$73.26 in government taxes, fees, and lev- and operates multiple camping sites and lodges in the ies (11.56 percent of total) (This does not include country, along with full food and beverage services and elements of overheads, salaries, and lodging tour operations. fees that might also include taxes and fees to the government.) The value chain analysis in figure 7.5 highlights • The same company operates safaris in Kenya and the following: Uganda and they indicated that on average, Tanzanian safaris are 30–35 percent more expensive to operate. • Only US$5,226.80 is relevant to Tanzania. The reasons cited were: • The consumer price of US$8,000 for the eight-day –– Longer distances and high fuel costs package only shows what the consumer was willing –– Unreliable and expensive electricity to pay for a safari experience in Tanzania, such as –– Higher labor costs due in part to lower productivity US$1,000 per day. –– Higher resupply and repair and maintenance costs • The US$2,773.20 is “not a leakage” to the economy of in lodges Tanzania. These are fees retained by a company oper- ating in another country. Although input costs are proportionately high in • These are standard commission fees paid to retail and Tanzania, taxes and levies for operating tourism com- wholesale buyers and sellers. panies are lower compared to other countries in the region. This brief value chain analysis has not been suf- The only time it can be considered a “partial” leakage ficient to explain why input costs are high and further is if there was transfer pricing between vertically- analysis is recommended. CHAPTER 7: Tourism |  1 2 9 FIGURE 7.4: Typical Tourism Value Chain FIGURE 7.5: Illustrative Operator Value Chain for Tanzania BOOKING 1 Agency Online $8,000 Tour operator Cost of an eight-day holiday to Tanzaniza from TOURS AND TRANSPORTATION the United Kingdom paid to a travel agent ACTIVITIES Travel agent keeps $1,920 (24 percent) as its fees ACCOMMODATIONS Booked directly 2 via Air international and/or local Hotels and lodges Sea operators Apartments Tented camps $6,080 LEISURE AND Travel agent pays an international TOURS HANDICRAFTS tour operator Tour operator keeps $851.20 (Included with FOOD AND (14 percent) as commision accommodations) BEVERAGES Shops Tour guides Craftsmen 3 Excursions Restaurants Workshops Activities Bars Food kiosks $5,228.80 Food souvenirs International tour operator pays Tanzanian tour operator GROUND Tanzanian operator pays: VAT, tourism development TOUR TRANSPORT TRANSPORATION levy, and park fees = $428; lodging = $1,600; transport = $483; internal charter flight = $505; camp salaries = $526; guiding = $66; travel = $59; overhead = $1,067; finance = $78 Car rentals 4 Vehicles Maintenance Taxis Drivers Public transport $416 SUPPORT Tanzanian operator’s gross profit SERVICES Corporate tax (38 percent) = $158.08 Information centers 5 Grocery Laundry Banking $156 Nature Cultural Wildlife, parks, TOURISM Tanzanian operator’s net profit Heritage sites, mountains, ASSETS art, music Roughly $20 per day lakes TANZANIA DTIS 2017 |  130 Integrate with Local Communities 60 percent of all produce sourced locally, there is also Tourism can be an important source of local employ- opportunity for growth. ment, income generation, and overall economic growth, as well as essential for conservation of natural and cul- Increased sales to the tourism industry are constrained tural heritage. Tourism-related assets (particularly wild- by the following factors: 14 life) are typically not valued by communities as assets and are often subject to poaching and encroachment.10 1. Lack of direct communication channels due to Protected areas are sometimes regarded by the com- the absence of standardization measurements, munities as restricting grazing and farming and thus which makes it difficult to assure quality control restricting their livelihoods. of products; 2. Lack of a legal framework to enforce compliance When communities are supplying goods, services, and with contracts; activities for tourism (for example, food, beverages, 3. High informality in the sector, which results in inse- handicrafts, guiding, cultural demonstrations, lodg- curity for farmers and for companies entering into ing services, and so on), the influx of tourists could contract-farming; and benefit them. This influx could also stimulate a new 4. Inefficiencies in the supply chain, as a result of lack of (or expanded) export market for some of the goods, knowledge on integrated pest management, market especially food and beverage. Numerous efforts are information, farmers not being organized, poor irriga- underway to help develop local communities to tap the tion infrastructure (limits production of off-season tourism value chains for their benefit. crops), weak management systems, and limited avail- ability of organic pesticides. The Tanzania Cultural Tourism Program facilitates increased cultural experiences in multiple communities Additional challenges cited by tourism-industry stake- across the country for both tour and lodging opera- holders include: tors and independent travelers. They helped establish the CTEs throughout the country, which provide local • Lack of consistent and dependable product quality, income generating opportunities such as tour guides, • Unreliable delivery times, CTE coordinators, traditional dance and music perfor- • Inferior or inadequate product packaging, mances, storytelling, accommodations, and direct sale • Prices are sometimes lower and delivery more pre- of locally produced goods such as handicrafts, food, dictable for imported items, and/equipment—such and beverages. The CTEs have the potential to scale-up as laundry and kitchen appliances—have to be pro- and expand their service offerings, increasing visitor cured internationally. engagement with communities and local purchases by operators. International visitors expect hotels, tour operators, and restaurants to provide services, facilities, and Increasing Local Purchases food and beverages that meet international standards. In December 2015, the United Nations Industrial Devel- With visitors, able to instantly broadcast negative opment Organization and the International Trade Centre, reviews to hundreds—if not thousands—of people over in collaboration with the Tanzanian Ministry of Industry TripAdvisor, Facebook, Twitter, or other social media and Trade, organized a workshop on “Strengthening channels, upholding these standards is assumed. How- Tourism Market Linkages for Tanzanian Producers and ever, meeting these standards can be a challenge for Processors”; which was based on a United Nations local producers. Inter-Agency Cluster on Trade and Productive Capacity project.11 Although “only 60 percent of produce sold to Nevertheless, there are companies and producers who the tourism industry is being sourced locally,” the work- are increasingly meeting these standards and selling to shop noted that in Kenya and South Africa, more than the industry. These include: 90 percent of produce is locally sourced.12 And yet, 22 percent of all tourism spending in Tanzania is for food • Natureripe Kilimanjaro: Mango juice and jam, and beverages.13 The latter is substantial, but with only cashews, and honey. CHAPTER 7: Tourism |  1 3 1 • Masasi Food Industries Company: Tomato ketchup, providers. It empowers disadvantaged communities to mango juice, mango slice pickle, mixed fruit jam, transform their lives through the development of sus- pineapple jam, and bottled water. tainable micro-enterprises that offer cultural tourism • Darsh Industries: Processed fruit products, including products to tourists. tomatoes; now selling to 10 hotels. A Best Practice Example for Cultural Tourism in Tanza- Opportunities for Increasing Visitor Engagement with nia: Mto wa Mbu CTE Local Communities The Mto wa Mbu CTE is between Arusha and Ngorongoro Conservation Area, ideally situated as a Cultural Tourism in Tanzania stop for visitors on their way to the parks. It employs Cultural tourism is one of the fastest growing tour- 50 people including local guides, who lead visitors on ism segments worldwide, which is yet to realize its full multiple activities: climbing Balaa Hill; tours of a Maasai potential for Tanzania. Cultural tourism offers one of Boma, market, village, and farm; tours of the Miwaleni the few economic opportunities for remote communities waterfall and lake; biking to Lake Manyara; cultural to reduce poverty, create employment, and stimulate dance performance; local food production; and local regional development (Silberberg 1995). It also offers brewing. Traditional lunches are prepared and served the opportunity for rural areas to showcase their by local women in their homes. Local farmers sell their cultural traditions (such as festivals, rituals), values, products including bananas and other fruits to the and lifestyle. tourists and accommodation establishments. According to the ITC (2015), 50 percent of the food sourced in The CTEs throughout Tanzania have provided an excel- Kilimanjaro and the northern safari circuit is produced lent platform for this market segment to grow. The locally, accounting for around US$5 million per year for Cultural Tourism Program estimates that at least 1,500 the local farmers. people are employed in cultural tourism ventures as coordinators, tour guides, food providers, dancers, and According to Elirehema Maturo, TCTP coordinator for handicrafts producers. Cultural tourism also includes the TTB-Arusha Branch, the Mto wa Mbu CTE earns home-stays and demonstrations of handicrafts produc- up to US$0.3 million per year. It contributes 20 percent tion and herbal medicine rituals. Local communities of its annual revenue to surrounding villages through benefit, not only from employment and income genera- the VDFs, which supports community projects such as tion, but also through the revenue generated for their school construction, health centers, and clean water Village Development Funds (VDFs), which support com- projects. The CTE also supports the women who make munity development projects. Although the majority lunches for the visitors, bicycle hire groups, guides, and of CTEs are concentrated in the northern destinations, souvenir shop owners. In addition, the TCTP provides they offer useful models for developing and maintain- grants to around 300 farmers within the Mto Wa Mbu ing cultural tourism offers, as well as managing the area to enable them to preserve their rice fields. The VDFs for the entire country. An estimated 70,000 annual TCTP has also set up a microfinance scheme for small visitors participate in cultural tourism activities in the vendors to borrow from US$30 up to US$200. Lastly, northern part of the Tanzania. According to a baseline the TCTP has supported the establishment of eight survey conducted by the TTB and the TCTP, in 2014, “roots-and-shoots” environmental clubs in Mto Wa Mbu, over 712 licensed tour operators in Tanzania include for 2,100 youths in the area villages. cultural-tourism activities in their itineraries.15 Similar CTEs and cultural tourism programs have Tanzania Association for Cultural Tourism Organizers been established in the areas of Longido, Mulala, and The Arusha-based Tanzania Association for Cultural Tengeru. Some of the revenue generated supports Tourism Organizers (TACTO) is an independent asso- school construction, as well as a dispensary (Mulala) ciation that works with a range of cultural tourism and orphanage (Tengeru). TANZANIA DTIS 2017 |  132 BOX 7.2: Nomad Tanzania Nomad Tanzania, one of the country’s major tour operators, insists • Eco-loos: In some of their especially remote locales, water on maximum support of local communities through their day-to- bowsers must travel 80 kilometers each day to collect enough day operations, as well as the Nomad Trust, which channels guest water for the guests to take a shower. To reduce the burden contributions to community and conservation support efforts. on sensitive habitats, they have adopted eco-toilets that use Examples of their community support activities include: a minimum amount of water and environmentally sound digesters. • Home-grown vegetables: In the remote Mahale Mountains, • Microfinance loans for their local guides to buy their own safari the locale is a 24-hour ferry journey from the nearest town (or vehicles. They then hire the guides and their cars, allowing them a four-hour flight), where most of their camp food comes from. to earn double. Through the Nomad Trust, they have set up a near-by community • Internal staff development and promotion so that all have vegetable garden, which now supplies most of their vegetables, the opportunity to realize their own ambitions within the and provides valuable income for the local community. company. Some of their guides, for example, started as waiters or • Support for local organizations and businesses: Most of room stewards. the furniture in their Lamai locale, for example, was made by a • Rigorous guide training for old and new guides to advance company that has been training former street kids to become their knowledge of wildlife, bush craft, photography, and basic expert carpenters. hospitality skills to make them amongst the best in the African safari industry. In addition to Nomad Tanzania, other tour operators and • Concession fees are paid to Nduara Loliondo, a Maasai organizations are conducting similar efforts throughout the country. community area that serves as an important buffer zone Tanzanian operator, Classic Tours & Safaris, and international bordering the Serengeti National Park to ensure that wildlife can operators such as Micato, Overseas Adventure Travel, and move unhindered through the area. This helps create an incentive Abercrombie & Kent also include community support, as well as to look after the game that passes through. community visits in their programs. Small-Scale Tourism and Gender Considerations • Access to finance: Only 20 percent have formal access to finance and 69 percent are excluded. Small-Scale Tourism • 91 percent of owners did not take a loan to start According to a survey, apart from a few large hotels their businesses. and tour operators, with more multiple accommodation • Only 0.4 percent have insurance. facilities, most operators in Tanzania are small scale • On reasons to run business: 72 percent said they did (MITI and FSDT 2012). At the time of the survey, in it for survival reasons whereas 20 percent run their September 2010, there were an estimated 3.1 million business part time. businesses owned by 2.7 million people, with 54 percent in rural areas and owned by women. Services, which Barriers to accessing finance include financial illit- would include tourism, comprised 30 percent of all the eracy, lack of collateral, lack of record keeping, businesses. The survey found the following challenges informality, banks take a long time to process the loan, for small-scale businesses: strict regulations, and lack of proper products for small businesses.16 • Only 43 percent keep records (mostly basic and patchy). Only 4 percent are formally registered Among these challenges, addressing the lack of (Tanzania Business Registry) and 5 percent have Tax business skills is a top priority because it would Identification Numbers. enable the businesses to operate more effectively and • 68 percent are single-employee businesses (including professionally, and thus become more knowledgeable the owner). of and eligible for finance. Training and capacity building • Education of owners: 74 percent completed primary are needed for record-keeping, business operating education and only 7 percent have secondary skills, and financial planning. Increasing local purchases education or higher. and community engagement, as mentioned previously, • Business running skills: 72 percent had no training could help spread the benefits of tourism—but not if 57 and only 21 percent and 7 percent had business and percent of the businesses do not keep records, only 5 technical training respectively. percent pay taxes, and only 0.4 percent have insurance. CHAPTER 7: Tourism |  1 3 3 The lack of the latter (especially) would disqualify any Americans compared to 70,000 for Tanzania in 2013. The prospective tour operator or transport operator from low numbers for Tanzania suggest that there is a poten- contracting with tour operators from the European tial for increasing the number of suppliers, particularly Union (EU) and North America, as well as operators those who cater to the American market, which tends from other parts of the world. to spend more for East African trips. Further, given the much lower number of American visitors in Tanzania, Tour operators in the EU, for example, are subject to this also suggests an opportunity to increase extensions the EU Package Travel Directive, which places full from Kenya to Tanzania. Table 7.5 provides the number liability on the operator if anything goes wrong; that of registered businesses by category; none of which are operator would, therefore, want to be sure that the large-scale, apart from perhaps the town hotels. Tanzanian operator who is serving their clients is sufficiently insured. The MNRT stated that additional properties, not accounted for in table 7.5, are either unregistered and/ Limited Number of Suppliers in Tanzania or considered unsuitable for tourists. In addition to the With very few SMEs insured and operating profes- registered properties, there are now more than 200 sionally in Tanzania, it is not surprising that the MNRT listings on Airbnb (a home-rental website), which include reported (see table 7.5) a relatively small number of reg- apartments, houses, and formal accommodations istered and licensed suppliers. Kenya, for example, has (such as lodges). These private accommodations over 600 licensed tour operators (nearly double the are not yet required to register as businesses and number of Tanzania’s) and over 400 luxury and four- thus pay the same taxes and fees as licensed formal star tented camps (more than 10 times of Tanzania’s). accommodations. Airbnb is becoming more popular Kenya received only 130,000 more international visitors worldwide, so the tax and licensing issue, which is being than Tanzania (1.26 million for Tanzania and 1.13 million raised in cities around the world, will no doubt also for Kenya), but of the total, they received nearly 300,000 become an issue for Tanzania as well. Airbnb is working with municipalities to help collect taxes upon payment, a TABLE 7.5: Number of Registered Tourism Businesses practice that may also work for Tanzania. No. of businesses Business type or properties Further, table 7.5 does not include independent and Campsites 14 semi-independent safari and mountain guides, porters, Car hire 23 and cooks. The guides alone, according to Emanuel Air charter services 3* Mollel, Secretary General of the Tanzania Tour Guides Caravan 1 Association, number as many as 6,500, while porters Cottages 2** and cooks are 33,500. The association is attempting to Handling agent 4*** create an umbrella organization of guides, cooks, and Horseback riding 2 Balloon safari 2 porters that would include the 800 members of the Hunting safari organizers 39 Tour Guides Association. Such an organization could be Lodges 223 helpful for organizing training, product development, Mobile camps 6 marketing, and start-up financing, as well as ensuring Mountain climbing 118 registration and licensing. Photographic safari 6 Professional hunter 128 Registration and Fee Requirements Serviced apartment 1 All tourist agents are required by the Tourist Agents Tented camp 35 Act (Licensing Regulations) of 1969 to be registered and Tour operators 322 licensed to offer tourism services in Tanzania. Tourist Town hotels 74 agents are registered and licensed based on the follow- Travel agents 77 ing classifications (see also table 7.6): Source: Tanzanian Ministry of Natural Resources and Tourism. * There might be more, but since they have no license from the Tanzanian Ministry of Natural Resources and Tourism, they are not reflected here. • Tour operators. For citizens, the operator require- ** Unclassified. *** Many might be operating illegally. ments include having “suitable office premises…a TANZANIA DTIS 2017 |  134 fleet of not less than five road worth[y] vehicles [that Labor Mobility in the EAC are] not more than five years old…comprehensively The EAC Treaty includes a “common market protocol on insured.” Start-up operators are thus automati- the free movement of labor or workers,” which allows cally excluded. Noncitizens must have no less than workers from any EAC country to accept employment 10 new vehicles. in other EAC countries. They cannot be discriminated • Car hire, travel agent, and mountain climb- against based on their nationality; they can travel freely ing or trekking operations. Must be 100 percent without visas between EAC-member countries’ bor- Tanzanian owned. ders. According to the protocol, all five member coun- • Hunting safaris tries committed to open up for professionals. Tanzania • Tour guides. Must be a Tanzanian national and “have has not specifically liberalized for mode 4—presence of adequate experience as reasonably required in this natural persons—which would facilitate cross-border profession.” Contrary to the nationality requirement, movement of labor from other EAC-member countries, noncitizens are also eligible to be guides.17 but it is generally open for professionals, technicians, and associate professionals. It is “unbound” on commit- For aspiring Tanzanian entrepreneurs who wish to ments, except for measures concerning senior manag- launch class “A” and class “C” businesses, these fees ers who possess skills that are unavailable in Tanzania. are probably beyond their reach. The registration and licensing processes in Tanzania are more extensive, Tanzanian Women in Tourism costlier, and lack transparency relative to those in Tackling trade-related constraints and promoting Kenya and Rwanda. Through a more streamlined licens- export-led growth in the tourism sector can provide ing, such as in both of the latter countries, costs could significant opportunities for women. In Tanzania, tourism be reduced in Tanzania, thus enabling more small busi- can help poor women break the poverty cycle through ness growth in tourism. formal and informal employment, entrepreneurship, TABLE 7.6: Classification of Tourism Businesses Applicable business types License fees Class “A” • Proprietors, owner-drivers, and self-employed drivers of passenger vehicles used in a tourist • For foreign operators that are less than 50 per- agent’s business cent Tanzanian owned = US$5,000. • Tour or safari operators • For majority Tanzanian owned = US$2,000. • Safari outfitters • Motor vehicle for hire enterprises offering tour transport facilities • Big-game fishing outfitters and operators • Proprietors of safari, hunting, or sightseeing lodges and proprietors of tented, camps catering for tourists • Travel bureau or booking office, which offer tour safaris other than those of an airline, and oper- ates international air tour and does not carry on any tourist activities in Tanzania • Professional safari photographers • Mountain climbing Class “B” • Professional hunters; • For Tanzanian citizens = US$200. • Persons letting-out vessels, whether manned or not; • For noncitizens = US$1,000. • Proprietors of enterprises offering camps and camping equipment for hire; • Professional and self-employed guides and couriers; and • Any other business of a tourist agent, not otherwise classified. Class “C” Tourist hotels US$1,000 Exclusive clubs US$2,500 Unclassified hotels US$200 Class “D” Curio shops US$200 Source: Tourist Agents Licensing Act, Amendment 3, 2011. CHAPTER 7: Tourism |  1 3 5 training, and community betterment. In addition, due (where female guides may be asked to share dorms with to its low-entry barriers, flexible working hours, and their male colleagues). availability of part-time arrangements, the sector offers opportunities that may be particularly suitable to the Tourism also offers significant employment opportuni- needs of women, including the possibility of balancing ties to women in the informal sector, yet here, too, gen- work and household responsibilities, and of working der hierarchies exist. Women may informally provide from home, for example, on artworks, handicrafts, and a wide range of services to tourists, such as washing so on. A number of gender-specific constraints, however, clothes, petty trading, cooking, and childcare, and also still prevent women from fully unleashing their trade often be involved in the production and marketing of and economic potential in Tanzania’s tourism sector, ethnic handicrafts—on the other hand, men may more and from benefitting in the same way their male coun- frequently provide skilled, higher-profit informal ser- terparts do—in some cases, those constraints may also vices, such as tour guiding, boat touring, and so on. contribute to perpetuating and/or reinforcing certain gender stereotypes, biases, and gaps. One of the factors constraining women into low-skill, low-pay tourism jobs is limited access to higher educa- Employment is arguably the single most important tion and training. According to World Bank data18, female benefit which tourism offers to Tanzanian women. enrollment rate in tertiary education in Tanzania was at Employment can provide income, economic and social 2.7 percent in 2013, and of those women who managed empowerment, and health benefits for women and their to reach tertiary education that year, only a modest 25 families throughout the country. As is the case in other percent enrolled in services programs (which include sectors, however, access to tourism-related employment tourism). Access to finance can also be a major con- may be gender based, and suffer from stereotyping and straint for women trying to enter the tourism sector: as sex segregation into different occupations. Even where a result of several factors including poor credit records women are the main tourism workers, they tend to be (or lack thereof), limited access to collaterals, and mis- often found in menial, semi-skilled, domestic and service trust from loan officers. It may be indeed difficult for type occupations such as housekeeping, reception, and prospective female tourism entrepreneurs to secure the other services. Due to lack of unionization, these jobs necessary financing. usually require low skills, are low paid, and tend to have the lowest security of tenure and benefits. It is also important to emphasize that (reliable) gender- disaggregated data on education, training, employment, In the tourism-related food industry, women are often at and income of women in Tanzania’s tourism sector, the bottom of the hierarchy as restaurant helpers, cooks as well as compelling analysis of gender gaps in each (not chefs) and waitresses. In the travel sector, similarly, of those areas, is chronically lacking, both at the women would typically have access to seasonal, part- national and international levels. This severely limits time, or minimum-wage employment, and be employed, the possibility to make informed decisions and to craft for instance, as travel agents in small travel agencies. (trade) policies that appropriately respond to the needs The airline industry is also an example of a segregated of female players in the industry. sector: women may dominate sales, ticketing, and flight attendant positions, yet the majority of airline chief exec- The Asilia Africa Travel Company (which runs 20 luxury utive officers, managers, and pilots are likely to be men. camps and lodges in Kenya, Tanzania, and Zanzibar) de- Tour guiding offers a similar picture: the profession is scribed the following reasons for the gender imbalance: traditionally male dominated, and whilst the number of female guides is progressively increasing in the country, • Women are sometimes reluctant to put themselves they may face discrimination and/or difficulties due to forward for what are traditionally considered men’s a mix of factors, including the remoteness of some tour roles [due to] different factors—dislocated geography, locations (and women’s subsequent inability to leave perceived nature of the work, and a family’s reluc- the household for long periods), the lack of trust from tance to allow their daughters or wives to work in a tour operators and sometimes tourists, or the limited predominantly male environment far from home; and availability of separated accommodation at tour camps • The inherent limitations on account of being a woman TANZANIA DTIS 2017 |  136 in Tanzania—there is less societal belief in their President’s Office Planning Commission, “around 55 capabilities, less support for them, and by extension, percent of the country’s population could be low-skilled, they have less belief in themselves, less confidence. 33 percent medium-skilled, and 12 percent high-skilled.” These limitations are exacerbated further by practical While the country aspires for middle-income status by restrictions—relatively few women in Tanzania drive, 2025, “the proportion of the high-skilled working popu- for example, many camps lack facilities to accommo- lation will need to increase fourfold and the proportion date female staff. of the medium-skilled labor will need to be more than double” (Moyo and others 2010). And yet, as reported Finally, voice and agency of women in tourism has been in the Labor Force Survey (2014), only 6.1 percent of traditionally limited in Tanzania. In 2011, the Association Tanzanians have reached any degree of postprimary of Women in Tourism Tanzania (AWOTTA) was formed to education. Technical and vocational training programs help get women more involved in the tourism industry. are underdeveloped and only a handful of firms offer According to Mary Kalikawe, owner of Kiroyera Tours on-the-job training.”21 and chair of AWOTTA, “Women have been invisible and unheard for too long, yet they are the backbone, For over one million people—over 10 percent of the strength and wisdom of our country,” she said, “there is total employment—in Tanzania and Zanzibar, tourism a very big gender imbalance in the sector, especially in is already providing jobs, directly and indirectly. lucrative positions, say taxi drivers—there are no female According to the World Travel and Tourism Council’s taxi drivers in Tanzania whereas this is a facility used (WTTC) 2016 report on Tanzania22, in 2015, the industry by all tourists, tour guides too, a big skew towards men directly supported 386,500 jobs (3.4 percent of the total due to the nature of the job and on the boards for advis- employment) and indirectly 1.1 million jobs (10.3 percent ing government, again very few women, so there is very of the total employment). By 2026, travel and tourism little heavyweight representation for them.”19 is forecast to indirectly generate 1.5 million jobs (10.2 percent of the total employment). Human Resource Development The key human resource challenge is to develop However, despite this positive estimate, tourism and offer higher quality, more competitive tourism industry representatives cite the lack of skilled labor experiences and services in Tanzania. This requires as a serious constraint for sustainable growth overall, skilled labor, which is lacking due to weak education and especially for the industry.23 The main workforce training programs and disincentives for the industry to weaknesses are in business skills, understanding visitor formally hire and train workers. needs and expectations, customer service, and online communications (Christie and others 2013). The lack In June 2015, the World Bank highlighted in the Country of skills also extends to ancillary industries critical for Economic Memorandum (CEM) the need to generate tourism such as marketing, architecture, design, and employment as critical for reducing poverty. The CEM information communications technology (Pio 2016). stated that “[c]reating better conditions for obtaining Richard Rugimbana, CEO of the Tanzania Confederation secure and decent earnings is the most direct and of Tourism, and Lathifa Sykes, CEO of the HAT, both sustainable way to lift out of poverty the 28 percent stressed this as a high-priority issue. Foreign labor of Tanzanians (12 million people) still living below the and improved local training programs would address poverty line.”20 Tourism was cited as one of the best the issue. existing and potential sources for accomplishing this. When labor is unavailable locally, tourism firms have to The challenge has worsened due, in part, to Tanzania’s hire foreign workers, but eight laws govern the issuance growing population that is outpacing improvements of work permits for these workers. Even if these work- in the education system. Between 1990 and 2014, the ers were available and could be formally hired, they are country’s population more than doubled from 25.46 mil- subject to both mandatory social contributions and the 5 lion to 51.82 million, and is forecast to grow annually percent Skills Development Levy (SDL), which the World by 3 percent (World Bank 2016). According to research Bank (2014) has cited as “extremely high by international from the International Growth Center and the Tanzanian and regional standards.” The SDL is charged based on CHAPTER 7: Tourism |  1 3 7 the gross pay of all payments made by the employer to Eligibility for their loans requires at least three years in the employees. It is important to understand that the business, a steady cash flow, a proper recording system, SDL is due and payable by an employer. In South Africa, capability to operate a profitable business, and the nec- for example, the equivalent levy is only 1 percent of sal- essary permits and licenses for operations. The extent aries. Revenues from the 5 percent SDL in Tanzania are of their lending to tourism-related businesses has not supposed to be used to fund skills training programs, been publicized. but that is only partially the case. Consequently, as the CEM (2014) emphasizes, “[t]he combination of these The Tanzania Women’s Bank (TWB) began to assist restrictive policies provides a disincentive to use formal women entrepreneurs to access loan finance in 2009. labor and as such to train and retain skilled workers.”24 The bank offers loans for small businesses that can provide three years of audited accounts, a tax clear- For tourism, the postsecondary National College of ance certificate, business plan, and certificate of reg- Tourism (NCT) in Dar es Salaam, with a branch in istration. As with the NMB, although TWB specializes Arusha, aims to be a main source of skilled labor. NCT in SMEs, their loans are not for start-up businesses. administrators and tourism industry representatives, However, they also lend to and manage the accounts however, noted that the college does not have the of savings and credit cooperative societies (SACCOS). financial and human resources to provide all the trained SACCOS exist throughout Tanzania, especially in rural and skilled staff currently needed by the industry. The areas, and might serve as local sources of tourism- Jambiani Tourism Training Institute in Zanzibar faces related financing.25 similar challenges. Interviews with a private banking sector specialist in The NCT’s budget for full operations is US$1.5 million, Tanzania reaffirmed the lack of bank financing for tour- which comes from several sources—29 percent is sub- ism enterprises.26 He said that, in 2015, the bank made sidized by the Tanzanian government, 36 percent from only two loans for tourism businesses; in 2014, no loans the Tourism Development Levy, and the remaining 35 were made. The average size of the loans was just over percent from tuition and additional assistance. However, US$1.5 million for a term of five to seven years at an in 2015, college officials explained, the college received interest rate of 7.5 percent. No special program exists only 29 percent of their total request from the govern- for SMEs or tourism businesses. ment and in 2016, they received only 6 percent. The banking sector in Tanzania does not offer specific Finance and Land tourism products. They only provide standard short- term loans or credits that are available to everyone. Access to Finance Issues Interest rates are still high—ranging from 18 to 22 per- Access to finance from banks and investors for tourism cent. Even worse, nothing is available for start-ups. On- businesses in Tanzania and Zanzibar is difficult and/ going businesses may be able to secure specific facilities or costly, and thus a significant development challenge. based on how well their business is performing, but it According to the Bank of Tanzania, there are 39 bank is not applicable to all. A lack of familiarity and under- groups registered in the country, including branches of standing of the tourism sector may account for some of international banks, such as the Bank of India, Barclays, reticence of banks and microfinance groups to lend to China Commercial Bank, and Citibank. tourism-related enterprises. One of the largest, in terms of customer base and Land branches (more than 150), is the National Microfinance In Tanzania, land is not readily available (or identifiable) Bank PLC (NMB), which offers SMEs loans ranging for investors since only 10 percent is registered and from US$7,500 to US$750,000. NMB loans can be used titled. Both the Tanzania Investment Center (TIC) and the as a working capital loan or for longer-term invest- Zanzibar Investment Promotion Agency (ZIPA) explained ment needs. The bank emphasizes their flexibility on the process to obtain land for tourism development. repayments for businesses with irregular cash inflows. For both mainland Tanzania and Zanzibar, there is no Their loans, however, are not for start-up businesses. land bank, land information system, or list of avail- TANZANIA DTIS 2017 |  138 able land for development, so investors have to first financial institutions. It also contributes to increased identify available land themselves.27 Over 90 percent transaction costs, as parallel channels have to be of the country’s land is public “general” land and not used to acquire and secure land property rights. specifically titled. Land is available for lease, usually Obtaining official land titles is possible, but costly (3 from District Councils, on a 90-year lease. In Zanzibar, a percent of the property value for notarization plus land bank existed based on a tourism master plan, but, legal fees) and can only be issued in Dar es Salaam.29 according to ZIPA, “the land is almost finished now” for Documents and permits, which are only issued in Dar tourism development. es Salaam, represent a prohibitive hurdle for small investors, traders, or farmers who reside outside the Foreign investors can obtain land for investment commercial hub. through the TIC, where a “derivative right” is granted. There are two main ways how investors can obtain land The second land-related issue concerns protected for investment: areas specifically. Policies for granting accommodation concessions inside protected areas are not consistent 1. Apply for land acquisition from the village, then fol- across the different categories of protected area and low all the necessary steps required until the land are subject to sudden change. Many operators in the is transferred from village land to general land and private sector cited this issue as the single largest given to the TIC to prepare a derivative right for obstacle to new investments. the investor. 2. Purchase a parcel of land from individuals or compa- Business-Enabling Environment nies, then, once the buyer and the seller have agreed upon the price, the seller is required to surrender the Taxes land title to the commissioner for lands to reissue it In general, the business-enabling environment for in the name of the TIC, which will eventually prepare tourism is challenging due to the multiplicity of taxes, a derivative right for an investor. levies, and fees, and a confusing, often overlapping collection system spread across multiple government This process is based on the Land Act of 1999,28 which entities from the local to the national levels. In 2013, states that all land shall continue to be public land and the Tanzanian National Business Council found through remain vested in the president as trustee for and on a Big Results Now-Business Environment Lab that behalf of all the citizens of Tanzania. The law recognizes the “multiplicity of laws and regulations, licenses, three types of land in Tanzania: permits and certifications; as well as the involvement of regulatory bodies/institutions with duplicative 1. General land  is surveyed land usually located in mandates; hampers enterprises’ competitiveness and urban and near-urban centers. limits their growth potential. Most procedures are 2. Village land  is usually land in villages and within burdensome and lack transparency. Businesses are villages in rural Tanzania. Some village land is sur- unable to access clear information about which licenses veyed, but the majority is unsurveyed. Village land they need to obtain as well as what requirements they cannot be used for investment until it is transferred need to comply with to obtain a license. In turn, the into general land. requirements to retain a license create the need for 3. Reserved land  includes that reserved for forestry, numerous decentralized inspections.”30 Similar concerns national parks, public recreation grounds, and so on. have been expressed by the HAT and the TCT. Basically, disorganization and lack of transparency are costing the Most of the land is unregistered and without title, industry extra time and money to untangle the complex which leaves residents and investors with uncertain multiple taxes, levies, and fees. “property rights and makes enterprises and individuals vulnerable to losing their land and delay[ing] their In fiscal 2015, two World Bank initiatives analyzed investment plans.” The lack of secure property rights the business environment for tourism, and especially reduces access to long-term financing, as immobile focused on licensing fees and taxes—an initiative that assets cannot be used as collateral for borrowing from reviewed all tourism-related taxes and fees and “the CHAPTER 7: Tourism |  1 3 9 elephant in the room,” an economic update on tourism determined by the Income Tax Act of 2008 and the EAC in the country. The latter aptly summarized the business Customs Management Act 2004 (which actually resulted environment for tourism as follows: in abolishing income tax holidays). Tax incentives are now granted to investors through enhanced capital “[It] is currently neither conducive to the deductions and allowances (TIC 2014). development of productive partnerships and viable business operations nor amenable 1. Wholly owned by a foreign investor or if a joint ven- to investment. In particular, levies and taxes ture, the minimum investment capital is not less than within the tourism sector are unpredictable, US$300,000 (or the T Sh equivalent); or uncertain, and often duplicative. For example, 2. If locally owned, the minimum investment capital is the number of tourism licenses, levies, and fees not less than US$100,000 (or the T Sh equivalent). can range from 10 for travel agencies, to 115 for air operators.”31 Whilst both requirements may appear to be relatively high, the one set for local investors can be particularly From discussions with the industry, however, the cost burdensome for micro, small, and medium enterprises of these taxes and fees was not the primary issue. (MSMEs)—especially considering that, out of more than Rather, the more important issue for them was the 2.7 million MSMEs covered by the 2010 survey, almost confusing and overlapping processes and procedures 95 percent had a start-up capital of less than US$500. involved with obtaining licenses and permits and paying the various taxes (listed in box 7.3) to different “Specifically, the government will rationalize authorities. With a more efficient and transparent tax incentives to remove most costly ones, con- system in place, the Tanzanian government’s collection solidate all tax exemptions in the tax laws and costs and the private sector’s compliance costs would repeal incentives that harm or contravene the probably be reduced, and more business could be EAC common market agreements. Further, the conducted, thus resulting in more tax and fee revenue government will harmonize SEZ incentives to the for the government. approved EAC Incentives Policy.”32 Incentives Tourism businesses can import duty-free, four-wheel- Incentives, according to the Tanzania Investment Act drive vehicles built for tourism purposes and hotel of 1997, mean tax relief and concessional tax rates are equipment (which is engraved or printed or marketed accessible to investors. Tax incentives, however, are with the hotel’s logo) (TIC 2014). Other items that are “deemed capital goods”—such as building materials, util- ity vehicles, and other equipment—are exempt from 75 BOX 7.3: Tanzania Major Taxes and Fees percent of import duties that is due. Until the beginning of July 2016, these goods were also exempt from 45 per- • The Income Tax Act allows for 50 percent capital allowances cent of the value-added tax that is payable. for plant, machinery, and equipment used to provide services to tourists and in a hotel. • Corporate tax is 30 percent. Overall, these capital incentives have been insuffi- • Withholding tax on interest = 10 percent. cient to attract increased tourism investment. The last • Withholding tax on dividends = 10 percent. major hotel investment in Tanzania was more than 10 • Income tax for individuals = 13 percent to 30 percent. years ago. At that time, tourism was the lead sector • Income tax for nonresident individuals = 20 percent. • All employee benefits are taxable. for foreign direct investments. However, at least three • Skills and development levy = 5 percent of total gross salary multi-property tourism investments are in progress by and wage payments by employers to employees. investors who believe that projects based on the quality • Value added tax is 18 percent on all taxable goods of Tanzania’s wildlife attractions will be profitable. and services. • The Tourism License from the Tourism Agency Licensing Authority = All operators must pay US$5,000 up front and Visas own a minimum of five vehicles. Visas are not required for EAC citizens traveling between EAC countries; they are required for TANZANIA DTIS 2017 |  140 noncitizens. Single regional visa and visa-on-arrival Addressing Constraints to Growth schemes in the EAC and the SADC country blocs have been initiated and are expected to help boost arrivals Table 7.7 is a summary of existing World Bank projects within each region. In fact, according to the UNWTO,33 and programs related to tourism in Tanzania. The by easing visa requirements and thus reducing priority action matrix for tourism (table E.1), identifies international travel costs, Tanzania and other countries three top priorities—such as those actions that in the EAC and beyond could see more growth in jobs could clearly have immediate impacts on tourism and their GDPs. UNWTO-WTTC34 research also has growth and are more within the existing capacity shown that improving visa processes could generate for implementation. an extra US$206 billion in tourism receipts and create as many as 5.1 million additional jobs in Group of Existing World Bank Projects and Programs Twenty countries. Developing countries, such as in the Since 2015, the World Bank has conducted three Association of Southeast Asian Nations region, could tourism studies in Tanzania, one of which is focused on realize US$12 billion in international tourism receipts expanding tourism development into southern Tanzania, by the end of 2016. The research also notes that another focused on taking stock of taxes impacting the visas, which are expensive or difficult to obtain, can industry, and a third provides an economic update of be a disincentive for tour operators and independent tourism in the country. In addition to these studies, the travelers to include a country in their itineraries—thus following are in-progress or under production: a new opportunities lost. Overall, East Africa is on track to national tourism strategy, a multi-sector education realize these benefits—it is the second-most open and training skills development program, a report subregion globally according to the UNWTO. However, on streamlining the regulatory framework, advisory Tanzania has not joined the East Africa single visa services to promote private sector growth in tourism, scheme yet, reportedly due to concerns about security and a development program for nature-based tourism in and disproportionate revenue sharing. southern Tanzania. Air and Land Access The DTIS process can be helpful in coordinating all of these efforts towards a single integrated national level Tanzania is cooperating regionally on improved ground tourism development program. The program should transport (roads and rail) through the Infrastructure be developed in close consultation with the MNRT so Consortium for Africa, which includes initiatives for that the result can be managed and implemented by improved eastern and central transport corridors. local staff. Table 7.7 presents as summary of projects The country is also cooperating with the Northern targeting the tourism sector. Ensuring effective Corridor Integration Projects, which links the EAC coordination and complementarity across initiatives landlocked countries (Uganda, Rwanda, Burundi, and is essential. South Sudan) with the Port of Mombasa in Kenya; it also serves northern Tanzania. Lastly, Tanzania signed Priority DTIS 2017 a MOU with Rwanda and Burundi for the development of a regional rail network. Improved ground transport Policies, laws, regulations, and governance. For will reduce travel time between countries and thus further tourism development in Tanzania, it will be further encourage tour operators to offer multi- essential that improvements are made through inter- country itineraries. governmental coordination and communication; public-private dialogue; and policies and legal and Air service liberalization has proven to benefit regulatory frameworks are reviewed, with the aim to economies and tourism in Africa. As of May 2014, improve elements of competitiveness and streamline Tanzania has signed bilateral air-services agreements investment and business operating procedures. The with 13 countries, including the main generating need for cooperation, coordination, and alignment is countries of Germany, the United Kingdom, Switzerland, very important in a sector like tourism, which affects and the United States, and initialed agreements with 38 and is affected by almost everything that happens in an other countries. economy and society. CHAPTER 7: Tourism |  1 4 1 TABLE 7.7: World Bank Tourism Initiatives for Tanzania Project, program, or analytics Description Status (as of June 2017) Private Sector Competitiveness Project Development of a new national tourism strategy Under tender Program-for-Results: Education and Skills for Strengthens institutional capacity to expand and improve training in Under preparation Productive Jobs tourism (and other sectors). Development Policy Operation: Business Improving the business environment for tourism (and other sectors) via Completed and now closed. Environment and Competitiveness for Jobs streamlining the regulatory framework. Assist in Determining the Taxation System A list of all taxes, levies, and charges paid by tourism sector has Completed in Tourism been posted on the Tanzanian Ministry of Natural Resources and Tourism’s website. Advisory Services: Promoting Inclusive and Increasing competitiveness, investments and jobs in tourism. Under preparation Private Sector-Led Growth in Tanzania Though Business Environment Improvements Investment Lending: Resilient Natural Resource Developing and conserving nature-based tourism in Southern Tanzania Under preparation Management for Growth Project (such as Ruaha National Park, Mikumi National Park, Udzungwa National Park, and Selous Game Reserve), enhancing local economic benefits and improving landscape and watershed management. Tanzania Tourism Futures: Harnessing Natural Study on opportunities and constraints of diversifying tourism into the Completed September 2015 Assets (Study) southern circuit, especially in Ruaha. Tanzania Economic Update: The Elephant in The Economic update on tourism. Completed January 2015 Room: Unlocking The Potential Of The Tourism Industry For Tanzanians (Study) Public and private sector workforce development. microfinance groups would enable them to lend more to Tourism cannot develop and progress without suffi- tourism businesses. ciently-trained human resources. By enabling Tanzani- ans and (especially) Tanzanian SMEs to access better • Establish a program similar to the USAID-supported tourism education and training, more businesses will Development Credit Facility, which provides credit hire them and, in turn, improve the quality and competi- guarantees to financial institutions, and programs that tiveness of their services and product offerings. This provide credit and lending for tourism enterprises and means, ensuring, at a minimum, that the NCT receives operations in Tanzania. the budget that is allocated to them. The capacity build- ing should also be applied to government officials, par- Business-Enabling Environment. A one-stop-shop ticularly those involved with tourism. approach is needed for tourism businesses, ideally accessed, as much as possible, online. This will reduce • Increase access to training and capacity building, administrative costs for the Tanzanian government and especially for business management, financing, and compliance costs for the private sector, and enable product development for SMEs. more sustainable and competitive growth. • Apply the funds as already allocated by the Ministry of Finance to support the NCT, or consider developing a • Streamline and rationalize the tax collection process public-private partnership. to reduce overlapping and duplicative functions and • Support the AWOTTA with their needs assess- administrative costs, and facilitate payments through ment, which will help focus on priority training and the establishment of a one-stop-shop, similar to what skills needs. exists in Rwanda and Kenya. Access to finance. Improved access to finance would Access to land. There is a shortage of land that is benefit a range of tourism businesses. The establish- readily available for the development of tourism infra- ment of a USAID-type credit guarantee for banks and structure. Policies for granting concessions in protected TANZANIA DTIS 2017 |  142 areas are not harmonized and are not secure. Tanzania, World Travel & Tourism Council, London, p. 1 23.  February 2016, interviews with representatives • Land surveys and a central database should from the Tanzania Confederation of Tourism, the Hotels be finalized Association of Tanzania, and individual hotel managers. • Improved security of tenure in protected areas for 24.  World Bank (2014), p. 22 accommodation investors 25.  FSDT (2014). 26.  Interview with Barclays Tanzania. 27.  The Integrated Land Management Information Notes System (ILMIS) is being implemented as part of the 1.  From the Projects and Operations (database) of World Bank’s Private Sector Competitiveness Project. the Private Sector Competitiveness Project Additional 28.  Land Act 1999, Chapter 113. Financing for Tanzania, World Bank, Washington, D.C., 29.  World Bank (2015b). http://projects.worldbank.org/P145971?lang=en. 30.  World Bank (2015b), p. 18 2.  WTTC (2016) and statistics from the MNRT. 31.  World Bank (2015c). 3.  WTTC (2016) and statistics from the MNRT. 32.  World Bank (2015b). 4.  Dalberg Global Development Advisors and Solimar 33.  Travel & Tourism Economic Impact 2016 International (2015). Tanzania, World Travel & Tourism Council, London, p. 1 5.  Mira-Salama (2017). and the Visa Openness Report 2015, UNWTO, Madrid, p. 6.  Dalberg Global Development Advisors and Solimar 34.  UNWTO and ITC, 2015, Tourism and Trade: A International (2015). Global Agenda for Sustainable Development, Geneva. 7.  tanzaniaculturaltourism.com. 8.  UNWTO Tourism Barometer, 2016 References https://www.e-unwto.org/doi/pdf/10.5555/ unwtotfb0834010020112015201611. 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Program Document for a Proposed Pio, Alex. 2016. “Trade in Tourism Services and Regional Credit to the United Republic of Tanzania for the First Integration in Southern and Eastern Africa.” In the Business Environment for Jobs Development Policy Unexplored Potential of Trade in Services in Africa, Operation. World Bank, Washington, D.C. edited by Nora Dihel and Arti Grover Goswami, 159– _____. 2015c. The Elephant in the Room: Unlocking 185. Washington, D.C.: World Bank. the potential of the tourism industry for Tanzanians, Positive Impact. 2016. "Women in Tourism: Why Economic Update. World Bank, Washington, D.C. the Inequality?" Asilia (blog), Asilia Africa, _____. 2016. “The Unexplored Potential of Trade in March 8. http://www.asiliaafrica.com/ Services in Africa.” Edited by Nora Dihel and Arti women-in-tourism-why-the-inequality/. Grover Goswami. World Bank, Washington, D.C. Silberberg, T. 1995. “Cultural Tourism and Business _____. 2016. World Development Indicators. World Bank, Opportunities for Museums and Heritage Sites.” Washington, D.C. Tourism Management, 16(5), pp. 361-365. WTTC (World Travel and Tourism Council). 2016. Travel TIC (Tanzania Investment Centre). 2014. Tanzania and Tourism Economic Impact - Tanzania. WTTC, Investment Guide. Dar es Salaam: TIC. London. UNIDO (United Nations Industrial Development Organization), International Trade Centre, UN Inter- Agency Cluster on Trade and Productive Capacity, 8 TANZANIA DTIS 2017 | 144 Zanzibar This chapter focuses on agriculture and tourism in Zanzibar, the two key sectors of the economy for job creation and poverty reduction. Zanzibar is known internationally as a major exporter of spices and a significant tourist destination. The recent high growth rates have had a modest impact on poverty reduction which remains at 44 percent. A relatively high rate of population growth combined with limited formal sector employment has resulted in the Zanzibar government prioritizing the growth of agriculture and tourism. With a population of 1.45 million in 2015, on a total land area of 2,654 square kilometers on the two islands of Unguja and Pemba, and with almost half the population under the age of 15, the government is committed to improving the challenging business environment. Since the union with the mainland in 1964, Zanzibar has been a semiau- tonomous nation within the United Republic of Tanzania. It implements its own development plans and is respon- sible for its own financial affairs. More than two-thirds of the Zanzibar population depend on agriculture for their livelihood. Zanzibar, known internationally as the “Spice Island,” for its cloves and other spices, also produces cassava, sweet potatoes, rice, corn, plantains, citrus fruit, and coconuts. There is a sizable artisanal fishing industry. In recent years, seaweed, which is mostly grown in "Zanzibar is known internationally the eastern part of Zanzibar, has also become an as a major exporter of spices and important export commodity. Despite the success with a significant tourist destination. seaweed, exports are limited. Zanzibar imports most basic foodstuffs, including rice, cooking oil, sugar, and The recent high growth rates wheat and flour from outside the region and maize from have had a modest impact mainland Tanzania. on poverty reduction which The Zanzibar Development Vision 2020, released remains at 44 percent." in 2000, envisaged Zanzibar as a middle-income CHAPTER 8: Zanzibar | 145 country by the end of the period. This long-term (28 percent) and industry (17 percent). Over the past socioeconomic development goal was updated in 2010 decade, the services sector, dominated by tourism, with an emphasis on eliminating absolute poverty while has continued to grow while the share of agriculture, reaffirming the commitment to achieve middle-income forestry, and fishing stagnated and industry declined. country status. The Vision guided the design of the The recently released MKUZA performance review ambitious Zanzibar Poverty Reduction Plan (ZPRP), report (2016) and Zanzibar Socio Economic Survey covering the period 2002–05 and the subsequent Report for 2015 recorded high aggregate annual growth Zanzibar Strategy for Growth and Reduction of Poverty rates of 6–7 percent which has resulted in a 69 percent phase I (widely known in its Swahili acronym as MKUZA increase in average GDP per capita over the period I 2005–10). The successor strategies, MKUZA II and, now 2009–15 (from US$555 in 2009 to US$939 in 2015). since June 2016, the Draft MKUZA III, all highlight the importance of continuing growth of the tourism sector The high growth rate has not translated into a broad- and to increase value added in agriculture to realize based reduction in poverty, particularly in the lagging Vision 2020. sectors of agriculture and fisheries. Less than 20 per- cent of the active working age population (between The Zanzibar economy is dominated by the services 15–65 years old) was employed in the formal sector. The sector, which account for almost half of gross domestic Informal Sector Survey (2013) recorded approximately product (GDP) (45 percent), followed by agriculture 350,000 people working on informal activities out of FIGURE 8.1: Zanzibar’s Economy Factsheet a. Key figures, 2014 d. Population, by age group, b. GDP growth and inflation, e. Sector contribution to 2012 2010–14 GDP, 2012 7% 16 15–64 years Services 55% 12 50% GDP growth 4.3% 8 Percent Unemployment rate 4 14% Debt stock 0–14 years 65+ years 0 2010 ‘11 ‘12 ‘13 ‘14 Agriculture Industries 42% 3% GDP growth Inflation 31% 19% -145,985 Balance of trade (T Sh, millions) c. Balance of trade, 2010–14 f. Tourist arrivals, 2010–14 300 25 400 17% 250 20 No. of arrivals, thousands 200 300 T Sh, billions Government revenue/GDP 15 Percent 2,134 150 10 200 100 Nomonal GDP (T Sh, billions) 50 50 100 1,552 GDP per capita (T Sh, thousands) 0 2010 2011 2012 2013 2014 0 0 Imports (T Sh) Exports (T Sh) Trade balance (%) 2010 ‘11 ‘12 ‘13 ‘14 g. Economic development 44.4% 46/1,000 48.2% Population under poverty line (basic needs), 2010 Infant mortality rate, 2013 310/100,000 85.9% Secondary net Primary net enrollment, 2013 Maternal mortality rate, 2012 enrollment, 2012 0.3 Inequality (Gini coeffecient), 2010 65 Life expectancy at birth, 2012 94.1% Youth literacy rate (15–24), 2010 Source: Derived from MKUZA III. TANZANIA DTIS 2017 | 146 a total population of 1.45 million (2016). With over 40 The Zanzibar government has begun to streamline busi- percent of the population aged 14 or younger, Zanzibar ness and property registration, but further simplification faces the challenge of expanding the labor market to is still required. The Business and Property Registration absorb school leavers and graduates. There are also Agency (BPRA), was established in 2012 as a dedicated significant gender imbalances in the labor force, with office for registering businesses and properties and has women having both a lower employment rate and started the process of setting up an online business lower education levels. In Zanzibar, just over 75 percent registration system. The Companies Act, Insolvency of women are “engaged in the labor market whether Act, and Company Business names and regulations employed or unemployed,” compared with 83.8 percent are all under review. The BPRA faces many challenges of the men (OCGS 2014a). And only 6.7 percent of women including understaffing and a shortage of resources to had formal training of any kind beyond and/or instead of effectively implement its mandate. Staff shortages in primary school. Men had a higher employment rate than record management result in delays with time allocated women, 78.4 percent versus 58.3 percent respectively. to document search. Of the women employed, 44 percent were working in services with 9.6 percent working in accommodations Many sectors are required to register with multiple and food services. agencies. In addition to registering with the BPRA, many activities are required to obtain additional reg- The Zanzibar government forecasts annual economic istration from other government agencies businesses. growth of 4–7 percent in the medium-term (3–5 years). These include businesses engaged in food, drugs, The MKUZA review did not expect Zanzibar to achieve and cosmetics. The Zanzibar Food and Drugs Board a 10 percent economic growth. They noted that, in 2014, (ZFDB) registers all businesses engaged in food, drugs, growth was 7 percent, and growth rates over the last and cosmetics, while also issuing import and export decade rarely exceeded this number, typically remaining permits. The ZFDA does not have an accredited labo- within the four to seven percent range. Furthermore, ratory and experiences serious staffing constraints, the outlook for 2016 was not particularly favorable which limits its capacity to effectively discharge its as production of both cloves and rice (Zanzibar’s mandate. The Zanzibar Bureau of Standards (ZBS) major crops) were expected to decline. Further, politi- was established to increase conformity assessment cal uncertainty ahead of the election in 2015, which with approved standards, however, to date, there are was subsequently postponed to January 2016, also only two products with the ZBS mark and 50 approved suppressed investment. standards. Further there appears to be limited coordi- nation with the Tanzania Bureau of Standards (TBS) on Mobilizing private investment and increasing govern- technical regulations. ment efficiency are key to advancing broad-based growth. Large fiscal deficits will continue to constrain Starting a business is also not easy in Zanzibar, and it public investment and serve to highlight the importance is even less so in the case of smaller enterprises. The of increasing public sector efficiency and improving the World Bank’s Doing Business in Zanzibar (2010) report policy environment to encourage increased private sec- showed that complying with all the registration require- tor investment. ments takes 10 procedures, 28 days, and about US$355 (or 72 percent of Zanzibar’s income per capita at that time) to set up a limited liability company. While incor- Business-Enabling Environment poration with the Registrar General’s Office, in Zanzibar, Starting a business and registering property in Zanzibar is relatively simple and takes less than one week (six remain challenging. The 2010 Doing Business (World days), the postincorporation procedures—such as pre- Bank) survey reported that starting a business costs paring a company seal, applying for all required tax more than the global average and totaled more than numbers from the Tanzania Revenue Authority (TRA) two-thirds of average income per capita. The relatively and the Zanzibar Revenue Board (ZRB), obtaining a high cost and time-consuming registration requirements business license, registering with the Zanzibar Social effectively crowd out many small businesses from Security Fund (ZSSF) and with the National Insurance entering the formal sector. Corporation, and submitting employees’ contracts CHAPTER 8: Zanzibar | 147 at the Labour Commission—can take up to 18 days to complete. BOX 8.1: Zanzibar Business Licensing System The Ministry of Trade, Industry and Marketing review of trade Zanzibar remains one of the most difficult places in licensing identified 87 separate acts, regulations, and bylaws the world to register property. In 2010, it required 10 relating to business licenses. Almost 240 licenses and permits procedures, which would take about 39 days and cost are issued by multiple authorities. Licenses and permits are valid 20.2 percent of property value. It ranked 170th out of for 12 months and are required to be renewed annually. One busi- 183 economies measured in the 2010 Doing Business ness or commercial activity frequently requires multiple licenses from a wide range of different regulatory bodies and government report, which placed it in the bottom 10 percent globally. authorities. There is no coordination between the different agen- In comparison, in Dar es Salaam, a property transfer cies, and many of the licensing requirements are outdated. The required nine procedures, which would take 73 days processes required to obtain a license are varied, with many but cost much less—just 4.4 percent of property value— being rather opaque, and there is no provision for complaining or appealing. ranking ahead of Zanzibar at 145th place. Compared to 34 other small island economies measured by Doing The review described the existing system of issuing business Business, Zanzibar fell in the bottom third and would licenses as “unfriendly, costly, cumbersome, and time consum- rank 27th. ing.” The review recommended establishing a single licensing authority to increase transparency and to streamline the process. Zanzibar Tax administration remains complex and Onerous licensing requirements create incentives for small busi- burdensome for private businesses. Businesses are nesses to operate informally. Zanzibar has 5,000 companies in required to pay taxes separately to the TRA, the ZRB, business but the Zanzibar Revenue Board (ZRB) only has records on 3,000 companies. This means significant revenue is being fore- and municipal and district councils. Whilst the TRA gone by the ZRB. administers central government taxes in the mainland as well as Union taxes in Zanzibar, the ZRB collects The report recommended a series of reforms aimed at increasing inland consumption taxes other than customs, excise, transparency and reducing the cost through streamlining the pro- cess and providing for licenses to be valid for 36 months. and income taxes on behalf of the Zanzibar government. Among those, the main ones include value added tax (VAT), excise duty local, hotel levy, restaurant levy, tour operation levy, stamp duty, airport service charge, sea- indexed by grantor’s name, making it hard to obtain port service charge, road development fund, petroleum quality information on the movable assets used as col- levy, fuel sector development fund, road license fees, lateral. Further, Zanzibar’s credit system limits the type motor vehicle registration fees, driving license fees, min- of assets that can be pledged as collateral (for instance, istry collections, and parastatal contributions. Zanzibar account receivables or future—or after—acquired assets taxpayers must transact with multiple authorities, and are not admissible as collateral). deal with a multiplicity of taxes, levies, and fees—the cost of compliance, in terms of both time and financial Zanzibar offers fiscal incentives to all investors—how- resources, becomes higher than it could be when taxes ever, they need to be more transparent and automatic are administered under a single umbrella, and particu- with the Zanzibar Investment Promotion Agency (ZIPA) larly burdensome for small businesses. This increases empowered to act as a one-stop shop. Although avail- the likelihood of tax evasion, with subsequent significant able for all investors, many local investors are unable revenue losses for the government. to meet the requirements. Registering for incentives requires (a) minimum investment capital requirement; Access to finance is another major constraint for micro, (b) application procedures for issuance of investment small, and medium enterprises in Zanzibar. In 2010, the certificate; (c) investment certificate fee; and (d) approval island would rank 167th on the ease of getting credit of incentive application. Whilst the procedure for se- amongst the 183 economies measured by the Doing curing an investment certificate can be burdensome, a Business—compared to other small island economies, minimum capital requirement for local investors, rang- Zanzibar would rank 30th out of 35. Despite the exis- ing from US$10,000 to US$300,000, is not attainable by tence of a securities registry in Zanzibar, the Registrar many small businesses. Further, the entire process of General’s Office, information is neither centralized nor obtaining an incentive can be extraordinarily lengthy, TANZANIA DTIS 2017 | 148 ranging between three and six months to obtain ap- proval (ZNCCIA 2013a). The ZIPA aims to function as a BOX 8.2: Zanzibar Fiscal and Other Incentives one-stop shop for investors (both domestic and foreign), Fiscal incentives include corporate tax relief, investment allow- however, the Ministry of Finance has intervened in the ance on capital expenditure, reinvestment allowances capital decision-making process. This reduces the transpar- expenditure, preferential tax rates for withholding tax on ency of the published incentives and encourages rent- dividends, royalties, and interest, preferential rates on indirect seeking behavior. taxes, and double deductions of approved and/or specified costs and expenses. The nonfiscal incentives include access to land, priority connections to utilities, transportation, and communica- Zanzibar’s investment law offers what the Chamber of tion services, employment of expatriates not available locally, Commerce considers to be generous tax and duty-free benefits accruing from duty-free access to the mainland, the incentives for approved foreign and national investors East African Community and Southern Africa Development Com- in the free zones. This includes a 10-year holiday from munity markets. corporate taxation followed by 10 years at 25 percent. In addition, Zanzibar investors are also eligible for incen- tives offered by the Tanzania Investment Act of 1997, the Zanzibar maintains reduced tariffs on rice and sugar, Income Tax Act of 2008, and East African Community has its own investment regime, and independent policies (EAC) Customs Management Act 2004, which removed for government procurement, privatization, comple- income tax holidays (except for firms located in tion policy, and intellectual property rights. The EAC free zones). Common External Tariff applies to the United Republic of Tanzania, however, Zanzibar has a dispensation to maintain much reduced tariffs on the imports of rice Zanzibar Trade and sugar destined for domestic consumption. The Almost two-thirds of imports are sourced from main- Zanzibar government justifies the exceptions to the com- land Tanzania. In 2015, Zanzibar’s total imports declined mon external tariff as benefiting Zanzibar consumers, by more than 40 percent to US$78 million from 2014 as however, the volumes imported consistently exceed major infrastructural projects were completed. Over domestic demand. The informal leakage of rice from 60 percent of imports are sourced from the mainland. Zanzibar to the mainland is estimated at 30,000 tons per In 2015, imports from the mainland totaled US$47.7 year, which is modest relative to the scale of the import million. Most of the goods from mainland Tanzania are licenses issued to major mainland importers.1 agricultural produce, mainly vegetables, meat, and rice. Clothes, electronics, and building materials are primar- The trade between Zanzibar and mainland Tanzania ily sourced from Asia, the Middle East, Kenya, and, to a faces fiscal as well as institution arrangement lesser extent, Europe and the United States. challenges. These include the requirement of payment of tax differences on cargo that is traded from Merchandise exports are relatively modest at less than Zanzibar to the mainland where traders are required 4 percent of GDP, while tourism accounts for more than to pay additional costs. Further, the payment of extra a quarter of GDP. Exports of merchandise rose from tax to goods sold in the mainland. Zanzibar Freight 3.9 percent of GDP in 2009 to 6.0 percent in 2014. When Forwarders complain of the need to apply for an export services, especially tourism, are included, this percent- permit with authorities in the mainland for all goods age increases significantly. Historically, cloves have that are exported through Dar es Salaam port. However, been the major export, although recently, fish and sea- from July 1, 2017, it was reported that the tax difference weed have increased in importance. Recently, Zanzibar would be settled in Zanzibar prior to shipment to the has begun exporting a range of new projects including mainland. This would obviate the need for clearing the charcoal, timber, foods, commodities, and veterinary same goods on the mainland. medicines. Exports from Zanzibar to mainland Tanzania of US$200 million in 2015 significantly exceeded imports. International trade and customs management are union Many of these are reexports from Zanzibar to the main- issues, while internal trade and industry and consumer land and include wheat flour, milk, wheat bran, and protection are the responsibility of the Zanzibar govern- sweet potatoes. ment. Zanzibar passed the Standards Act in 2011, which CHAPTER 8: Zanzibar | 149 provided for the establishment of the ZBS in 2012. Prior SPS and food safety through the provision of outreach to 2012, standards issues were managed through the and improved information and notification mechanisms. TBS. Since international trade is harmonized between the mainland and Zanzibar, the TBS risks duplicating Export permits are required for all agricultural prod- procedures on intra-union trade, which increases com- ucts. All exporters must be registered with the Ministry pliance costs. The ZBS has sought to minimize duplica- of Industry, Trade and Marketing (MITM), obtain an tion through close collaboration with the TBS. The ZBS export permit from the Ministry of Agriculture, Livestock does not have any accredited laboratories and remains and Fishing (MALF) and a certificate of origin from seriously understaffed. the Zanzibar Chamber of Commerce and Industries Association (ZNCCIA). The MALF levies a royalty of 1–2 The ZBS’s good cooperation with the TBS allows percent ad valorem on all agricultural exports. For resources to focus on specific Zanzibar issues. The ZBS exports to third countries, the ZNCCIA charges their applies all the TBS standards in Zanzibar. The ZBS and members US$13.75 (T Sh 30,000) while nonmembers the TBS have established a task force to coordinate pay US$18 for the certificate of origin. Issuing the EAC and harmonize administrative and procedural issues.2 certificate of origin costs US$2.25. Further, the TBS director general sits on the ZBS board. When the ZBS participates in external meetings such All exported containers pay a US$100 weighing fee. The as the International Organization for Standardization WVA requires all exports to obtain a certificate prior to (where they have observer status), they join with the shipping. The WVA charges US$100 per container for delegation from the TBS. The Zanzibar quality assur- weighing the goods and issuing the certificate. ance scheme is equivalent to the TBS scheme and managed by the same private conformity assessment Agriculture company. Given the financial and technical resource con- straints facing the ZBS, their strategy of working closely The population of Zanzibar is mainly dependent on with the TBS is sound. However, ZBS’s lack of capacity the agricultural sector for their livelihood. Agriculture also creates challenges in ensuring effective day-to-day employs approximately 60 percent of the nation’s labor cooperation with the TBS. The Zanzibar private sector force, it accounts for 27 percent of GDP and gener- highlighted the importance of the ZBS coordinating and ates half of the foreign exchange. Agriculture has the working more closely with other trade facilitation agen- potential to drive economic growth in Zanzibar. MKUZA cies to reduce delays and streamline approvals. Given II aimed to increase growth of the agriculture sector the dearth of technical and financial resources, the ZBS from 4.4 percent to 10 percent. The agriculture sector should aim to build expertise in areas of specific com- grew by an average of 2.5 percent in the five-year period mercial interest to Zanzibar, for example, seaweed and ending in 2014, which is barely equivalent to the rate of fisheries while harmonizing with the mainland TBS for population growth. Agriculture sector growth has varied most products. widely over the past decade as the largely rain fed crop production fluctuated with the changes in the weather. Sanitary and phytosanitary (SPS) administration Most recently, this included a very poor harvest in 2012. requires improved coordination and technical capacity Zanzibar remains vulnerable to climate change. building. There is a lack of inter-agency coordination between the multiple agencies responsible for regulat- Growth in the crops subsector has not kept pace with ing agricultural and food products include the ZBS, population growth. The crops subsector averaged an Zanzibar Food and Drugs Authority (ZFDA), the Chief annual growth of 0.66 percent between 2010 and 2014. Government Chemist Laboratory Agency (CGCLA), and As the largest subsector (see table 8.1) it exerts a strong the Weight Verification Authority (WVA). The ZFDA and influence on the aggregate growth trend. The other the CGCLA largely mirror the functions of their counter- components of forestry, livestock, and fishing have parts on the mainland. All of these regulatory agencies experienced a relatively stable average growth of 3.70 face shortages of technical capacity and trained person- percent, 5.02 percent, and 6.08 percent, respectively, nel, which limits their ability to enforce the SPS. There is over the same period. In 2014 and 2015, fisheries and also a need to increase awareness of the importance of livestock experienced similar growth rates of 8.2 and 7.5 TANZANIA DTIS 2017 | 150 TABLE 8.1: Food Crops Value Produced in Zanzibar, 2014 and 2015 other spices, including cardamom, bird’s eye chilis, cin- 2014 2015 namon, ginger, nutmeg, pepper, turmeric, and vanilla, Amount Value (T Sh Amount Value (T Sh though in very limited quantities. Private investment Type of crop (tons) billions) (tons) billions) research estimated the global market for seasoning Paddy 29,564 22.5 29,083 22.8 and spices was US$12.7 billion in 2012 and forecast an Cassava 158,704 43.5 132,641 37.4 average annual growth rate of 4.8 percent.3 With the Banana 57,437 30.7 47,495 26.1 mature markets of the European Union (EU) and the Yams 2,116 1.1 2,409 1.3 United States accounting for half of total world spice Source: Derived from OCGS (2015). trade, the report noted rapid growth rates in Asia, particularly India. While the aggregate spice trade is percent, respectively. Although in aggregate, agriculture growing rapidly, the bulk clove market is more unstable sector growth was below the 10 percent anticipated as it is dominated by demand from Indonesia, which is growth rate and has thus been unable to make a consid- also the largest producer. The EU and India pay a pre- erable contribution to poverty reduction. mium for higher-quality cloves. This demand for high quality cloves has been increasing, however, Zanzibar The review of MKUZA II highlights the limited involve- has largely continued to sell into the bulk clove market. ment of the private sector in the provision of support The world demand for clove oil estimated at 5,000 tons services, value addition, and processing in the agricul- per annum (Duclos 2012), exceeds existing production tural sector. The review attributes the relatively poor levels. Zanzibar has an opportunity to increase value performance of the agricultural (agribusiness) sector to addition through improving clove quality and process- a wide range of factors, including inadequate budget for ing the essential oils. Approximately, 50 percent of spice policy implementation, low incentives to farmers which farmers are smallholders and do not produce for clearly discourage investment, underperforming agribusiness defined grades and standards (Mahmoud 2013). and small and medium enterprises, poor marketing structures, declining soil fertility, and infestation by Clove farmers are required to sell their productions pests and diseases. Other factors include inadequate to the Zanzibar State Trading Corporation (ZSTC). The finance to obtain productivity-enhancing inputs or ZSTC has operated a compulsory monopsony market- capital, limited availability of support services such as ing system since the private sector, Clove Growers research and extension, and lack of appropriate tech- Association, was eliminated in 1968. The ZSTC was mod- nologies forcing the majority to produce only for sub- ernized in 2011.4 The new legislation provided for ZSTC sistence. The report also notes the weak links between to operate commercially and to purchase cloves from producers and research institutions and providers of farmers for 80 percent of the export price. The new extension services, and poor links along value chains. ZSTC operated with a much smaller staff and required an annual government subvention, subsequently ZSTC The sector has low productivity and high posthar- has operated profitably (see table 8.2). While the prices vest losses. Along with low domestic production of paid by ZSTC improved significantly after 2011, farmers agricultural commodities is the persistent problem of continue to complain about the lack of transparency higher levels of postharvest losses, particularly of food in the marketing and pricing of the crop. The Zanzibar crops, because of poor handling, inadequate process- Cloves Producers Organization (ZACPO), which repre- ing, and poor storage technology and facilities. The sents the smallholders, continues to lobby for increased average postharvest losses for rice, cassava, veg- transparency and more stakeholder involvement in etable (tomatoes), and fish is 13, 26, 42, and 25 percent the setting prices.5 The ZAPCO has also requested the per year, respectively. Zanzibar government to actively promote the spice sector through more effectively regulating “buyer collu- Cloves and Spices sion,” which, they argue, reduces prices to the producer. Clove exports still account for close to 50 percent of total exports and provide a livelihood for more than Recent reforms guarantee farmers 80 percent of the 8,000 farmers. Zanzibar cloves are exported to Europe price obtained by the ZSTC while maintaining the ZSTC and South East Asia. Zanzibar also produces a range of monopoly. The increase in the ZSTC purchase price CHAPTER 8: Zanzibar | 151 TABLE 8.2: Quantity and Price of Cloves, 2011–15 Financial Quantity purchased Quantity Sold Average price Value of purchases Value of sales Ratio of sales to year (tons) (tons) per kg (T Sh) (T Sh billion) (T Sh billion) purchases 2012 4,852.9 4,063.0 14,939.5 72.5 93.8 1.29 2013 1,503.3 2,185.0 12,439.3 18.7 32.5 1.73 2014 5,375.4 5,230.9 14,008.3 75.3 94.9 1.26 2015 2,826.5 2,766.0 14,010.3 39.6 53.3 1.35 2016 5,764.8 5,667.0 14,033.4 80.9 98.2 1.22 Source: Derived from Zanzibar State Trading Corporation official data. (from US$3 to US$10 per kilogram) during fiscal 2012, percent of the cloves are grown). The interviewees were coincided with a large increase in the price of cloves on selected to include those with 5–10 years of experience the international market resulting from the downturn and those with 20–30 years. Most of the farmers inter- in production by Indonesia (the largest producer in the viewed expressed concern over the competence of the world).6 The price was fixed for the year (and paid) in ZSTC in providing the necessary support. Specifically, Tanzanian shillings. The ZSTC classifies cloves into three farmers were unable to access credit and were very grades and offers lower prices for the second and third critical of the quality of the extension advice. When the grades. In fiscal 2013, the price was adjusted down- farmers were asked why they considered the marketing wards to reflect the changes in international prices.7 The restrictions as a constraint they responded, “that the Tanzanian shilling has continued to fluctuate against the board was not competent in implementing their tasks U.S. dollar and, over the period 2012–16, has depreciated such as provision of loans [and] extension services…” by approximately 38 percent. The increase in the ZSTC The farmers stated their wish to have the freedom to purchase price to 80 percent of the export price has choose where they sell their produce. significantly reduced the proportion of production that is sold on the informal market. Low productivity, credit constraints, and weak exten- sion services characterize the sector. Productivity in Does the ZSTC address the incomplete and missing the clove sector remains low at 1,365 per hectare. This markets for credit and technical advice? Officials from is approximately half the recommended level of 2,700 the MITM justify the ZSTC's continued monopsony by per hectare. The low productivity is consistent with the asserting that it protects the incomes of small clove reports (from the farmers) of the inadequate extension farmers from large price fluctuations. The ZSTC stated services. Many farmers have limited knowledge on the that farmers will receive the agreed price in Tanzanian prevention of clove tree diseases, poor harvesting prac- shillings (for that year), regardless of the change in tices reduce the yield as does production mishandling, global market, and will be paid the full amount in cash and the absence of advice on the replanting of seedlings on sale. The ZSTC also rationalize the continued com- leads to unnecessary wastage. pulsory requirement by referring to their provision of services that will enable clove farmers to increase Essential Oil Distillery in Pemba their incomes. The services include: the provision of Zanzibar accounts for 10 percent of the world trade seedlings; the transport of cloves from the farm to the in clove stem oil and has potential for future growth— marketing points; the supply of subsidized dying equip- providing the market is liberalized. The present state- ment; the provision of soft loans to farmers; provision owned distillery in Pemba is the sole producer and of accident insurance; technical advice on harvesting; exporter of clove oils. The distillery produces between and annual award for the best performing farmers. The 2,500–3,000 tons of oil yearly, extracted from: clove MITM estimates the value of these additional services as stems and leaves. Presently, the oil distillery has equivalent to approximately 12 percent of the price paid. extended its operations to include the production of other oils including: eucalyptus (utilized in medicine and Clove farmers wished to have the freedom to choose perfumery), cinnamon, sweet basil, lemongrass, and where to sell their product. Hilal (2013) interviewed bitter orange (extracted from orange tree leaves) (see 30 clove farmers in six villages in Pemba (where 90 table 8.3). Plans are also currently underway to start the TANZANIA DTIS 2017 | 152 TABLE 8.3: Production of Essential Oils in Pemba, Kilograms, 2016 Eucalyptus Eucalyptus Fiscal year Clove stem Clove bud Lemon grass Cinnamon leaf citriodora camaldulensis Basil oil Clove leaf 2007 9,914.0 362.0 46.96 165.76 481.5 186.0 24.3 1,558.85 2008 3,290.8 – 66.691 64.81 739.1 325.0 4.25 991.61 2009 19,319.9 – 58.65 80.0 504.0 471.5 – 520.8 2010 7,957.0 – 55.34 35.75 661.5 426.5 18.0 671.9 2011 13,549.0 – 61.2 61.5 416.5 395.5 9.4 299.0 2012 28,88.5 – 48.2 11.4 719.5 554.5 18.9 – 2013 18,231.0 – 46.8 104.5 253.5 454.0 7.0 1,258.5 2014 11,895.0 – 48.8 42.8 635.5 472.5 6.45 2,042.5 2015 23,500.0 – 45.97 140.0 659.0 – 7.0 1,266.0 Source: Derived from Zanzibar State Trading Corporation data. production of rose water and bath salt for export pur- Performance of Livestock Subsector poses. The 2014 Zanzibar Clove Report considers that The livestock sector has been growing at more than 5 market trends are favorable for growth of the Zanzibar percent per year over the past six years. The MKUZA II clove industry. At present, Indonesia produces 70 per- review highlights the importance of the livestock sec- cent of the world clove oil, followed by Madagascar, with tors as a source of growth. It contributes almost one- Zanzibar’s share standing at 10.4 percent. third of agricultural GDP and about 13 percent of the total GDP. The sector has continued to grow, however, The ZSTC faces the challenge of improving both the in the absence of better quality data, it is difficult to say quantity and quality of services to smallholders that will whether this represents an increase in the quality of enable them to increase their productivity. Increased livestock products or simply an increase in the num- transparency over price setting in conjunction with ber of animals. Average annual growth in the livestock assisting farmers to increase the quality of their product subsector has been 5 percent over the past five years (and hence obtain higher prices) will all work towards and by 7.5 percent in 2014 and 2015. Although some of improving the willingness of farmers to choose to sell this increase may be explained by improved data col- their cloves to the ZSTC. The ZAPCO, established in lection methods, efforts by the government to empower 2004, welcomed the new (2011) reforms and a more livestock keepers to vaccinate, improved collaboration commercial ZSTC, however, as noted earlier, they between the livestock keepers and the Zanzibar govern- wished for more transparency and information on pro- ment in increasing the availability of drugs are all poten- duction and marketing. tial contributing factors. The Zanzibar government should monitor the ZSTC to Growth in the dairy subsector is linked to the increased ensure it supports increasing productivity in the clove use of cross-bred cows with higher productivity. The sector. Justifying the continuation of the ZSTC monop- success of the Tsetse Fly Eradication Program and sony on cloves from an economic perspective requires Livestock Development Project has alos encouraged the ZSTC to enable clove farmers to increase their increased investment in improved breeding stock. Milk productivity through addressing credit and technical production and productivity increased from 7–11 liters constraints as well as price discovery. The experience of per cow per day in 2014 to 14 liters in 2015, and total state marketing boards under monopsony indicates that production grew by 17 percent albeit from a relatively they generally fail to eradicate the constraints facing low base of 30,000 liters. farmers and producers. It is important for the govern- ment to monitor the performance of ZSTC. Should pro- The livestock sector faces poor animal health services, ductivity fail to increase, the Zanzibar government may a shortage of efficient abattoirs, and weak domestic pur- wish to consider further regulatory reforms, including chasing power. During the period 2010 to 2015, no new removal of their monopsony privilege. slaughterhouses were constructed and the seven that CHAPTER 8: Zanzibar | 153 exist are poorly equipped. There continues to be poor However, to date this had not occurred, rather, there delivery of good animal health services. Other major has been an improvement in marine conservation (in constraints include the continued practice of traditional the Menai, Chwaka, Mnemba, and Pemba areas). There livestock husbandry, land limitation, weak extension has been no significant improvement in fish processing; services, fodder shortages, animal diseases, low invest- investments in this area would enable storage and the ment, and a dearth of improved breeds of dairy cows export of higher-value fish. Postharvest losses through and milk goats. poor handling remains a serious problem and have been estimated at 25–50 percent of the catch (Hoof and Fisheries Subsector Kraan 2017). This is due to ill-treatment on board, poor The fisheries sector has underperformed other sectors processing facilities and practices, and losses further of the economy with its share of GDP declining in the up the marketing chain through lack of an effective cold past decade, while the share of the population relying chain for transport. Currently, the fish catch in Zanzibar on fishing for their livelihood increased from 20 to 25 does not meet domestic demand and fish is imported percent. Average growth in the fisheries sector has from China. Large-scale investment in the fisheries sec- been lower than expected for much of the period of tor in Zanzibar requires approval from both the Zanzibar implementation of MKUZA II. The apparent high growth government and the government on the mainland. To in 2014 stems from the one-off adjustment from moving date, there appears to be limited awareness of the seaweed production from the crops subsector to the major constraints holding back investment in the fish- fisheries subsector within the GDP calculations. This eries sector. subsector contributed about 5 percent to agricultural GDP and 2.5 percent to the overall GDP in 2015 from Zanzibar requires an updated fishery policy address- 4.6 percent in 2007, which shows a negative trend. The ing government and management issues, including subsector employed about 25 percent of the population links with tourism and conservation issues. Much has in 2015 as compared to 20 percent in 2007, either as changed since the 1985 fishery policy, which focused on fishers or as providers of supportive fisheries services. increasing the supply of fish, creating jobs, and conserv- In 2010, fishermen earned a premium of 84 percent ing marine resources. The Fisheries Act dates from 1988 over the annual average income—US$765 compared to and the regulations from 1993. Increased population US$415. In 2014, production of fish in Zanzibar amounted growth and growing demand from the tourism sector to about T Sh 127 billion, more than 15 times the total have increased fish prices. Fish is no longer considered value derived from the production of seaweed. The a cheap source of protein for lower-income groups. value of fish catch in 2007 was T Sh 34.6 billion, show- The strong demand for fish from the tourist industry ing a steep increase in the value over the period. At the is encouraging more artisanal entrants to the sector. same time, the share of seaweed in export of marine There is increasing competition for land and beach products was over 95 percent in 2015. landing sites between the tourism and fishing sectors. There is no up-to-date assessment of the state of the Now, the sector is dominated by small artisanal fishing. fish stocks since the 1980s. The Zanzibar government is Expanding employment and creating more value-added currently preparing a Fisheries Policy (first draft, June investments in downstream processing requires invest- 2014) with the support of the EU Smartfish Initiative. The ing in larger-scale deep sea fishing and onshore cold policy document notes the potential for fisheries to play storage facilities. Artisanal fishing is mainly carried out a larger role in the economy, and recognizes the neces- close to shore and it is hard to regulate. In 2010, 84 sity of addressing governance and management issues, percent of all fishing vessels operating were propelled with the aim of increasing the formalization of fisheries by sail, poles, or paddles, only 15.6 percent were motor- activities, promoting artisanal fishing, developing aqua- ized. Dhows and planked boats are used in Unguja and culture, and promoting value addition. outrigger canoes are more common in Pemba. The Zanzibar government provides boats and fishing equip- Seaweed Subsector ment to artisanal fishermen. Improved fishing equip- Seaweed is Zanzibar’s second-largest export and the ment along with increasing the number of fishermen largest marine export product. Further, approximately and vessels may lead to overfishing in these waters. two-thirds of seaweed farmers are women. Increasing TANZANIA DTIS 2017 | 154 seaweed production has the potential to contribute to seaweed powder, body creams and powder. Foreign poverty reduction. Almost two-thirds of seaweed pro- investors from Denmark, the Philippines, and the United duction take place in Pemba, and is either Cottonii or States are involved in international marketing. Spinosum seaweed. Between 1990 until 2012, Zanzibar spinosum seaweed production grew from about 800 to In 2012, estimated income from seaweed production was more than 15,000 tons per year. A November 2016 report US$25 per month, such low prices discourage private to the National Seaweed Committee estimated that 23, investment and research into improved productivity and 654 farmers were employed in the sector, consisting of switching to higher-value varieties, ensuring it remains 10,258 men and 13,393 women. The cottonii seaweed largely the preserve of small-scale informal activity. (genus Kappaphycus) which commands a higher price, Zanzibar exported about 16,700 tons of spinosum in 2015 has been plagued by repetitive crop failures despite (the trend since 2010 is shown in table 8.4). The average substantial farm development effort since the late production per farmer was approximately 100 kilograms 1980s. During 2012, total Zanzibar cottonii production per month, which at farmgate prices ranging from T was only about ninety tons, which was less than 1 per- Sh 300–400 per kilogram (US$0.19–0.25 per kilogram) cent of total seaweed production. A recent survey by the would yield a gross monthly income per farmer from ZAPCO, a seaweed farmer organization in Pemba, con- seaweed of US$19–25. The bulk of such income went sidered the prospects for expanding cottonii production to farmers’ labor, but some farmers incurred costs of to be poor owing to a combination of environmental con- planting material, transport, and other operating costs. cerns8 and the technical information required for suc- cessfully increasing productivity. Innovative methods of TABLE 8.4: Production of Seaweed in Zanzibar, 2010–15 farming in deep water return higher growth rates than Production Value the off-bottom method, which remains widespread. Year (tons) (T Sh millions) 2010 12,516 2,983 Seaweed has multiple uses and world demand contin- 2011 13,040 5,533 ues to grow. Seaweed are used to extract carrageenan, 2012 15,088 6,063 which is used as an emulsifier, stabilizer, and gell- 2013 11,044 4,135 ing input in the food, pharmaceutical, and cosmetics 2014 13,302 6,008 industries. Seaweed value-added products produced 2015 16,724 9,469 in Zanzibar and marketed commercially include soaps, Source: Derived from the Department of Fisheries and Marine Resources. FIGURE 8.2: Trends in Seaweed Production and Value, FIGURE 8.3: Trends in Seaweed Exports from Zanzibar, 1990–2008 1990–2008 12 2.0 12 2.0 10 10 1.5 1.5 8 8 Tons, thousands Tons, thousands T Sh, billions T Sh, billions 6 1.0 6 1.0 4 4 0.5 0.5 2 2 0 0.0 0 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Production (tons, thousands) Value (T Sh, billions) Production (tons, thousands) Value (T Sh, billions) Source: Derived from Msuya 2013. Source: Derived from Msuya 2013. CHAPTER 8: Zanzibar | 155 Information from farmers during the previous 2005 Tourism Sector DTIS in Pemba revealed that Zanzibar seaweed was ultimately purchased by companies that used it as raw Zanzibar’s tourism sector is showing signs of stagnation. material for the manufacture of refined alcohol-pre- While Zanzibar is home to a diverse range of natural cipitated iota carrageenan. This carrageenan was sold attractions and cultural heritage that have a global tour- primarily to dentifrice and food ingredients markets. ism market, the first generation (over the past 25 years) Recent increases in seaweed purchase prices from T of public and private tourism investments have not Sh 400 per kilogram in 2014 to T Sh 700 per kilogram in created a strong enough economic platform to support 2015 were linked to the availability of better equipment Zanzibar’s longer-term development objectives as out- for processing and handling of the seaweeds. Prices lined in the Zanzibar Vision 2020, the Zanzibar Growth fluctuate with cottonii selling (depending on the qual- Strategy, and the National Strategy for Growth and ity) for more than double the price of spinosum (Hoof Reduction of Poverty (MKUZA I and II). For instance, by and Kraan 2017). Improving the quality of the seaweed 2020, the Zanzibar government hopes that 50 percent of through extension work and disease monitoring, prom- all employment will be generated by tourism (ZCT 2014); ises to significantly increase farmer incomes. currently, tourism supports a little over 10 percent of all jobs in Zanzibar (the industry directly supports 11,500 The earlier DTIS noted the absence of domestic proces- jobs and an additional 45,000 engaged in tourist-related sors as a major constraint along with the inability to activities (RGOZ 2013), which is about 10.7 percent of offer both cottonii and spinosum. The studies of Msuya total employment—just over 528,000 recorded in the (2013) and the earlier DTIS identified a number of con- 2014 Integrated Labour Force Survey). In addition, by straints, including the costs associated with transporting 2020, the government hopes to record 500,000 tourist seaweed from farms to the drying areas, the challenges arrivals from roughly 300,000 in 2016. Achieving these with drying seaweed during rainy periods, low sea- targets will require careful planning and focused invest- weed prices that farmers say is not proportional to the ment driven by committed leadership. amount of work and investment they put into producing the seaweed, inadequate market volume for the amount Tourism growth has not been planned in Zanzibar and of spinosum that farmers can produce (associated with this has placed enormous pressure on an already limited markets for the iota carrageenan that is made strained infrastructure platform that includes water, from spinosum), and health problems, such as back- energy, waste management, roads and access, and aches, itching eyes, dry skin and other issues related to human and natural resources. The organic tourism long exposure under the sun and in the sea. Generally, growth that has occurred, largely led by accommoda- occupational hazards are higher in aquaculture than in tion investments, has also been opportunistic and has agriculture. Increasing awareness and understanding of not been properly linked with the rest of the economy. the health and safety risks will assist with the develop- Zanzibaris has not benefitted from tourism as much as ment of appropriate mitigation measures. they might, and the industry has had some negative environmental and social consequences. Tourism is The seaweed sector has the potential to expand produc- inherently multi-sectoral, and to be successful, needs tion and increase value addition. Currently, virtually all integrated planning and policy making, and strong gov- the seaweed is dried and then exported for further pro- ernance structures to guide and monitor sector growth. cessing. International agencies, including the Food and Agriculture Organization and United Nations Industrial Tourism arrivals are growing, but yield is not. Figure Development Organization, have identified opportunities 8.4 shows tourism arrivals to Zanzibar have increased for improving productivity through better farming and steadily since 1985, with 294,243 international arrivals postharvest handling, and transforming the seaweed in 2015. The growing value of tourism-related services into value-added products (such as powder, seaweed in Zanzibar from 2007 to 2014 is shown in figure 8.5. soap, body creams, and food). The Task Force on The contribution of tourism to Zanzibar’s GDP has Seaweed Development would benefit from a study tour steadily grown as well, from T Sh 72.2 billion in 2007 to Indonesia and the Philippines, which have success- to T Sh 200 billion in 2014 (OCGS 2014b)—approxi- fully grown their seaweed industry. mately one-fifth of Zanzibar’s economy (see table 8.6). TANZANIA DTIS 2017 | 156 FIGURE 8.4: International Arrivals to Zanzibar, 1985–2015 FIGURE 8.5: Zanzibar Tourism-Related Services, 2007–14 350 2007 300 No. of arrivals, thousand 2008 250 200 2009 150 2010 100 2011 50 2012 0 1985 1990 1995 2000 2005 2010 2015 2013 Source: Derived from the Zanzibar Commission for Tourism. 2014p 0 25 50 75 100 125 150 175 200 TABLE 8.5: Average Length of Stay for International Tourists, T Sh, billion 2010–14 Accommodation and food services 2010 2011 2012 2013 2014 Administrative and support services* Arts, entertainment and recreation Seychelles 10.4 10 9.9 10.2 10.2 Source: Zanzibar Commission for Tourism. Maldives 7.6 7 6.7 6.3 6.1 Note: P = projection. Mauritius – – – 10.8 10.9 *Includes travel agency and tour operator services. Sri Lanka 10.0 10 10.0 8.6 9.9 Zanzibar* – – 6.1 6.0 6.0 and ferry.) Without disaggregated data, it is difficult for Source: Derived from UNWTO (2016). the government to develop tourism growth strategies. *The calculation for Zanzibar is based only on surveys of departing tourists from the international airport. Considering that 59,000 tourists arrive by ferry or cruise ship and are likely to be short-stay visitors (cruise ships only for half Regional Integration a day), the real average length of stay is likely much lower. Increasing regional cooperation throughout East Africa on public goods and services would stimulate additional TABLE 8.6: Contribution of Tourism to Zanzibar GDP, 2007–14 tourism. The private sector has begun joint marketing GDP through the East Africa Tourism Platform. Increasing Tourism contribution segment 2009 2010 2011 2012 2013 (T Sh billions) coordination on safety and security standards and pro- Accommodation 62.4 70.5 87.9 93.8 104.4 124.4 grams, and adopting internationally standardized hotel Food and classifications standards would all contribute to increas- beverage 18.0 17.3 29.1 39.6 52.9 54.4 ing the attractiveness of Zanzibar as a tourist location. services While a visa-on-arrival scheme operates at Zanzibar’s Administrative and support 7.7 8.3 11.0 12.4 13.0 12.9 international airport, the tourism sector would ben- services* efit from introducing a single regional visa. To date, Arts, entertainment, 2.8 3.6 5.8 7.7 8.0 8.2 Tanzania and Zanzibar have not joined the East Africa and recreation single-visa scheme. Total 90.9 91.4 133.8 153.5 178.3 200** Source: Derived from OCGS (2014b). Regional Labor Mobility *Includes travel agencies and tour operators. **Equivalent to US$91.2 million. The EAC Common Market Protocol for the Free Move- ment of Labor/Workers, which allows workers from any Zanzibar earned approximately US$294 per visitor in partner state to accept employment within any other 2014,9 which is about half of what competitors in the EAC country, is also applicable to Zanzibar, although as region earned. Kenya, for example, earned US$643 and mentioned earlier, Tanzania has not specifically liberal- Uganda US$628 per visitor. However, expenditure per ized for mode 4, “presence of natural persons.” The visitor data cannot reliably be calculated because nearly tourism sector experiences difficulties in recruiting half of the international tourists are short-stay visitors. skilled and experienced staff for higher-level positions, (More than half of all visitors [168,136] arrived directly to and faces hurdles in obtaining work permits for expatri- Zanzibar through the international airport, while 67,000 ate staff. Enabling the movement of workers in the EAC arrived on domestic flights and 59,000 by cruise ship would allow the tourism sector to grow more rapidly. CHAPTER 8: Zanzibar | 157 Access a lunch, and offers opportunities for increasing visitor Air service liberalization has benefited Zanzibar with engagement with and purchases from local communi- 11 airlines offering direct services (compared to 28 air- ties. Some of the activities include learning batik design, lines serving the mainland.). Although the airport has weaving demonstrations, and experiencing a traditional undergone expansions and improvements over the past Swahili lunch. decade, it will continue to need additional improvements. A new airport terminal is scheduled to open in 2018. Development Constraints Enhanced Links Supply Side Constraints Both the Zanzibar government and local tourism indus- try are trying to diversify beyond the beach resort seg- Skilled Labor ment with more excursions and activities. For Zanzibar, Zanzibar faces similar challenges to the mainland, these experiences include ecotourism (Jozani, Ngezi, namely a shortage of skilled labor to develop and offer and Kiwengwa forests), marine tourism (kite surfing, higher quality, more competitive tourism experiences scuba diving, snorkeling, and dolphin watching), and and services. This is lacking for the same reasons— cultural tourism (handicrafts, cuisine, monuments, and weak education and training programs and disincen- museums) have the potential of becoming important tives for industry to formally hire and train workers. links in Zanzibar’s tourism value chain and thus offer- The Jambiani Tourism Training Institute, for example, ing expanded opportunities for more local microenter- trains 300 students a year, 100 of whom drop out before prise, jobs, and incomes. Zanzibar has the potential to graduation. Even at 300, though, it is not enough to meet significantly increase the contribution of tourism to the demand because the institute is not providing the skills economy growing and diversifying potential income that are needed by the industry.10 The main workforce generating and job growth opportunities for Zanzibar’s weaknesses are in business skills, understanding visitor international tourism value chain. needs and expectations, customer service, and online communications (Fernandes and other 2013). Improved There are substantial opportunities for increasing the local training programs would address the issue. links with local communities. Tourism can benefit the communities when, as some already are, they are sup- Capital plying goods, services, and activities for tourism—for Access to finance from banks and investors for tourism example, food, beverages, handicrafts, guiding, cul- businesses in Zanzibar is generally not a binding con- tural demonstrations, lodging services, and so on. One straint for medium- and large-scale operators, however, 30-room hotel, purchasing fish and meat locally, was it remains a constraint for microenterprises. Zanzibar spending approximately US$500 per day. is attracting investment. From 2010 to 2014, almost US$723 million was invested in 84 hotel and restaurant Considerable potential exists for developing incremen- projects in Zanzibar, with nearly half of that capital tal value-added activities in-country. For example, the invested in 2014 alone, the highest amount invested in Zanzibari operator will earn approximately US$45 more that period. However, for hotel investors, the minimum per person for excursions. On average, each of his cus- amounts needed for the Zanzibar Investment Promotion tomers purchases three excursions—Moto Handicraft Agency approval—a requirement for all projects—is Museum and Workshop in Pete, Jozani Forest, and US$0.3 million for local investors and US$2.5 million for Stone Town—at US$35 per person. The operator foreign investors. For other tourism-related projects, receives on average US$15 per person after payments local investors must invest at least US$0.005 million to the village or local restaurant for lunch, admission fee and foreigners US$0.5 million. For local entrepreneurs to Jozani or, if his own guides are unavailable, US$10 for who are starting new businesses, this can be a serious a licensed guide. From the $45 (or $30 if the operator barrier to entry, one that perhaps constrains new prod- has to pay for an independent licensed guide) the tour uct development and innovation. operator is also required to pay 18 percent VAT, thus leaving him US$44.25. The cultural tourism excursion Potential Action: Provide incentives to local and foreign to the Moto Handicraft Museum and Workshop includes investors to assist with the financing of small-scale local TANZANIA DTIS 2017 | 158 entrepreneurs, especially those whose product ideas and improving labor law and skills development.11 These would add value to the offers of their hotel and restau- areas were, to an extent, reiterated in a ZNCCIA (2013b) rant developments. study. It emphasized the “triple aims of (i) greater clarity, (ii) less complexity, and (iii) sound tax structure.” It also Land provides a list of tourism-related taxes and fees (shown There is a dearth of new land available for tourism in in box 8.3). Zanzibar because of past land allocations. New develop- ments are required to be on existing development sites. Zanzibar ranked behind its regional competitors on tax The ZIPA have noted, “the land is almost finished now” issues. The ZNCCIA (2013b) study included a useful com- for tourism development. Nevertheless, since 2010, the parison with the tax regimes of other small island econ- agency has approved 84 tourism-related projects, which omies in terms of the ease of paying taxes which ranked are moving forward, all of which presumably secured Zanzibar 103. The rankings of the regional comparators the rights and permits from the Ministry of Lands to are particularly noteworthy, with Zanzibar significantly invest and develop or redevelop plots for tourism. behind the Maldives, Mauritius, and Comoros. “In [the] Maldives, a typical medium-size company makes one Potential Actions: Establish a centralized land registry payment, pays 9.1 percent of its commercial profit in and regional one-stop shops for land registration. This would assist potential tourism investors and developers. Update the Land Registration Act of 1954 in line with the BOX 8.3: Tourism-Related Taxes and Fees National Land Information System that the World Bank’s • Zanzibar Revenue Board Competitiveness Program is supporting (Christie and Taxes include: others 2013). -- hotel levy - 18 percent -- value added tax - 18 percent -- stamp duty - 3 percent Demand Constraints • Tanzania Revenue Authority The business-enabling environment facing investors Taxes include: and operators in the tourist sector suppresses demand. -- income tax - 30 percent Major constraints include a multiplicity of taxes, levies, -- pay as you earn, stamp duty, withholding tax, skills develop- and fees and a confusing, often overlapping collection ment levy on gross payroll - 5 percent • Lands tax: Rental per hectare annually system spread across multiple government entities • Zanzibar Social Security Fund: Social Security fund for all from the local to the island-wide levels. In 2013, the employees - 10 percent Tanzanian National Business Council, through the Big • Commission for Tourism: From US$1,000 to US$15,000 per Results Now - Business Environment Lab (BRN-BE Lab), year depending on the size of the company reported on the “multiplicity of laws and regulations, • Zanzibar Investment Promotion Agency: Annual payment for investment license, from US$500 to US$1,500 licenses, permits and certifications…the involvement • Fisheries: US$5 per tourist per day to enter marine reserves; of regulatory bodies/institutions with duplicative man- 30 percent goes to the local community dates; hampers enterprises’ competitiveness and limits • Community Fund: One percent of turnover payable to local their growth potential” (Fernandes and others 2013). authority (new tax) • District Council This remains a major challenge for investors in the tour- -- Liquor license: from T Sh 1.5 million to T Sh 2.5 million ism sector. Increasing transparency by making informa- per year tion on licensing requirements more readily and easily -- Signage: from T Sh 100,000 to T Sh 500,000 accessible is also important. • Port Authority: Boat licenses for boat and radio • Environment: Regional Inspections certificates from T Sh 100,000 Simplifying taxation and reducing the multiplicity of lev- • Food safety: Regional Inspections certificates from T Sh ies and fees are a priority. The priority reform areas 100,000 identified by the BRN-BE Lab for the mainland are also • Good governance: Public broadcast TV or music (new) from T relevant to the Zanzibar tourism sector, especially Sh 2,000,000 to T Sh 5,000,000 realigning of regulations and institutions, simplifying Source: Derived from ZNCCIA (2013b). taxation and reducing the multiplicity of levies and fees, CHAPTER 8: Zanzibar | 159 TABLE 8.7: Ranking for Ease of Paying Taxes for Selected Small standards) and 34 restaurants, few of which provide Island Economies, 2015 international level service (ZCT 2014). There are also Country Ranking now more than 300 listings on Airbnb, which include Maldives 1 apartments and houses. For the latter, the lack of Singapore 4 registration, taxation, and licensing requirements will Mauritius 12 become issues as this accommodation option continues Timor-Leste 20 to grow in popularity. Seychelles 32 Comoros 40 It is important to use registered local guides and Dominican Republic 70 operators. The government requires all operators and Fiji 80 guides to be registered. This has the potential to create Zanzibar 103 employment for small Zanzibari businesses, however, Jamaica 178 there was some concern that foreign tour group manag- Source: Derived from World Bank’s Doing Business. ers had sold and organized island tours directly rather taxes, and spends less than one hour per year on tax than through locally licensed operators. (insert end compliance, whereas in Zanzibar Town, such a medium- note reference). It is important for the ZTC to effectively size company makes 48 payments, pays 40.8 percent of monitor compliance by the registered guides and opera- its commercial profit in taxes, and spends 158 hours per tors. Zanzibari women are involved in small-scale trade, year on tax compliance” (ZNCCIA 2013b). selling handicrafts and food products to tourists. This provides for an uneven income flow due to seasonality The private sector is actively engaged in highlighting (especially in the case of trade in food and vegetable the importance of tax reform to support future growth products), and, only in a minority of cases, provides for and profitability in the tourism business. The Zanzibar a sustainable livelihood in the long-term.14 Association of Tourism Investors, which counts 100 members representing all types of businesses, was Women appear to be discouraged from being more conducting a tax review study to prioritize issues and engaged in the tourism sector through providing indi- actions.12 The results of this study are expected to rein- rect services, such as tour guides for cultural heritage force the priority for improving the tax regime and will sites and translation and marketing services. However, assist with identifying specific actions. they are also constrained by the low-education levels, cultural and resource constraints. As typically, men own Potential actions and solutions: the resources (land, capital, cars, boats, and/or fishing equipment) required for engaging in tourism-related • Improved tax collection and licensing system: A one- activities or services. Women’s property or inheritance stop shop for industry licensing. rights may be subject to discriminatory provisions • Establish online registration of businesses.13 resulting from concessions, made by the government • Streamline the list of public charges (licenses, per- and courts, to customary and Islamic law. For instance, mits, taxes, levies, fees, and so on) applicable to the while the Tanzania Marriage Act provides for certain tourism sector that is published on the Ministry of inheritance and property rights for women residing on Natural Resources and Tourism website through a the mainland, it does not apply in Zanzibar (Gregerson government-initiated process that is based on private 2006). Also, since property and production assets are sector participation. often used as collaterals in the context of bank loan applications, women’s ability to access credit can be severely limited. Small-Scale Tourism In the tourism sector, most operators are small scale, Policy actions are required to facilitate women’s access apart from a few large hotels. Zanzibar counts 407 to finance, jobs, training, and markets, as well as to accommodation establishments accounting for 8,263 increase their voice and agency in the tourism industry. rooms (of which 33 percent do not meet international TANZANIA DTIS 2017 | 160 Notes org/handle/10986/18688. Duclos, T. 2012. Le giroflier de Madagascar. l’exotisme 1.  In 2013, the mainland Ministry of Industry and par excellence ! Expression cosmétique, 13, 208-213. Trade issued licenses for 85,000 tons. Gregerson, Brittany. 2006. “Brittany Gregerson on 2.  Though the ZBS and the TBS are scheduled to Islam and Gender Relations in Zanzibar.” JYAN Blog, meet quarterly, due to funding, they rarely do. October 1. https://berkleycenter.georgetown.edu/ 3.  www.transparencymarketresearch.com/season- posts/brittany-gregerson-on-islam-and-gender- ing-market.html. relations-in-zanzibar. 4.  The Clove Act No. 39 of 1968 was repealed and Hilal, Zuweina Abdulla, 2013. The Implications of Pre- replaced by the 2011 Act. vailing Marketing System in Production and Export: 5.  Masare (2016). The Case of Cloves Production in Zanzibar, Research 6.  International prices surged to US$13 per kilogram. Paper, Institute of Social Studies, The Hague. 7.  The difference between first grade and third grade Hoof, Luc van and Marloes Kraan. 2017. Scoping Mission widened from T Sh 1,000 to T Sh 4,000 per kilogram. In Marine Fisheries Tanzania: Mission Report, Research fiscal 2012, first and third grade were T Sh 15,000 and Report C004/17, Wageningen University. T Sh 14,000, respectively, and in fiscal 2013, it was T Sh Mahmoud, Issa Ibrahim. 2013. Inclusion of Small- 14,000 and T Sh 10,000, respectively (Hilal, 2013). Scale Farmers in the Spice Value Chain in Zanzibar, 8.  Seaweed production is very sensitive to sea tem- Tanzania, Research Paper, Institute of Social Studies, perature increases due to climate change. The Hague. 9.  Calculated by dividing the total estimated earnings Masare, Alawi. 2016. "Clove Growers’ Plea to Isles Govt." from tourism by the number of visitors and the average The Citizen, October 13. http://www.thecitizen.co.tz/ length of stay. magazine/businessweek/Clove-growers--plea-to- 10.  February 2016, interviews with Dr. Miraji Ussi of isles-govt/1843772-3415274-7vqja8/index.html. the Zanzibar Tourism Commission, Fatma Khamis, exec- Msuya, F. 2013. "Social and Economic Dimensions utive secretary of the Zanzibar Association of Tourism of Carrageenan Seaweed Farming in the United Investors, and hotel managers. Republic of Tanzania." In Social and Economic 11.  Program Document for a Proposed Credit, the Dimensions of Carrageeena Seaweed Farming, edited United Republic of Tanzania for the First Business by D. Valderram, J.Cai, N. Hishamunda, and N. Ridler, Environment for Jobs Development Policy Operation, 15–146. Fisheries and Aquaculture Technical Paper June 2015, p. 13. No. 580. Rome, FAO. 12.  Interview with Fatma Khamis, executive secretary OCGS (Office of the Chief Government Statistician of Zanzibar Association of Tourism Investors, February Zanzibar). 2014a. “Zanzibar Integrated Labour Force 23, 2016. Survey, 2014.” OCGS, Zanzibar. 13.  ZNCCIA (2013b), p. 18. _____. 2014b. “Annual National Accounts Zanzibar, 14.  Ali Amour, chairman of the Zanzibar Association 2007–2014.” OCGS, Zanzibar. of Tour Operators and chief executive officer of RGOZ (Revolutionary Government of Zanzibar). 2013. Fisherman Tours, gave two examples of illegal selling “Tourism in Zanzibar.” RGOZ, Zanzibar. http://www. and excursions undercutting locally licensed operators zanzibar.go.tz/index.php?rgo=tourism and guides. However, it appears that at least one case World Bank. 2010. Doing Business in Zanzibar 2010. the manager was charged and deported. Washington, D.C.: World Bank. ZCT (Zanzibar Commission for Tourism). 2014. “Zanzibar Destination: Five Years Marketing Plan (2015–2020).” References ZCT, Zanzibar. Christie, Iain, Eneida Fernandes, Hannah Messerli, ZNCCIA (Zanzibar National Chamber of Commerce, and Louise Twining-Ward. 2014. Tourism in Africa: Industry and Agriculture). 2013a. Study for Developing Harnessing Tourism for Growth and Improved Incentives and Better Regulations of Local Businesses Livelihoods. Africa Development Forum. Washington, in Zanzibar. Zanzibar: ZNCCIA. D.C.: World Bank and Agence Française de _____. 2013b. Improving Tax Regime and Business Développement. https://openknowledge.worldbank. Environment in Zanzibar. Zanzibar: ZNCCIA.